By constantly extending the expected length of the cycle, the politically difficult task of bringing spending and taxes back into balance could be put off indefinitely. As we know, that didn’t end well.
Nor is it just the wealthy who are using gold as a means of hedging themselves against a devalued dollar. The Chinese authorities have been steadily increasing their gold reserves for some years now, resulting in a massive transfer of the metal from West to East.
Over the past twenty years, China’s gold reserves have risen five fold in volume terms to 1948 tonnes at the last count. Their value is still dwarfed by China’s stock of US Treasuries, but the gap is narrowing fast.
That China appears to view gold as a more dependable bet than US government debt shouldn’t altogether surprise, given the massive build-up of US indebtedness. A further $1 trillion of fiscal expansionism is now only weeks away from Congressional approval, much of it likely to be financed by Federal Reserve money printing.
Britain still owns 310 tonnes of the stuff, hoarded away in the Bank of England’s vaults. Yet it might have been so much more, but for Brown’s turn of the century determination to diversify away from the “barbarous relic” – as John Maynard Keynes famously called the precious metal – into a basket of fiat currencies.
This certainly helped rescue a number of banks from ruinous short positions in the metal, and helped China substantially expand its own reserves at what later proved to be knock-down prices, but at considerable cost to the UK’s wealth. The loss on the sales when judged against today’s elevated price is around £10bn – a somewhat expensive misjudgment it might be said.