Gold, Gilts and Higher Taxes
The failure last Friday to push resistance versus the dollar at $1.4340 was not helped by the overall view taken about the ‘quantitative easing’ policy of the BoE.
With no other central bank going down this route just yet we may find that our Government will have ended up buying its own debt off a few investment banks at what may prove to be the highest ever price for UK gilts.
That would actually make rather a neat end to the Labour Governments disastrous mismanagement of the UK economy.
History might well show that Gordon Brown sold half the Gold reserves at the lowest (in value terms) price for Gold in history at the start of his regime. It may also show that he topped even this by buying £75bn of its own debt at the highs.
At some point the government will have to stop buying, issue more or sell off the purchases. When the market gets wind of this you will not see a buyer of Government debt this side of Mars. The price will fall like a stone.
Given that the BoE is buying Gilts some 5% above the price last Wednesday and on a comparable basis will probably have to sell at a price at least 5% below that level we are probably looking at a loss on the deal of some 10% (£7bn) for the taxpayer. A price worth paying if it works…if it doesn’t…just another few pence on income tax.
(yes I know this blog is sometimes very anti-Gordon Brown and anti-Labour. However I would say that Mr. Brown seems to deserve pretty much all of the comments. All senior politicians will make some mistakes. Gordo is simply seems to be creating a catalogue).
Also see Spread Betting on Gold.
The above comments do not constitute investment advice Clean Financial accepts no responsibility for any use that may be made of them.