As most in the gold community know, the UK Chancellor of the Exchequer Gordon Brown announced on 7 May, 1999 that HM Treasury planned to sell gold. The dollar began to rise, from about 110mg gold to 120mg on 6 July, the day of the first sale. This translates into dollarish as: gold went down, from $282 to $258. It makes sense, as the UK was selling a lot of gold… or does it?

We won’t get into the theories of his motivation. However, we note that if he wanted to—pardon the dollarish—push down gold, he was not particularly effective. He squandered half of Britain’s gold to get the price to drop 8.5%. That lasted but a few months. By the end of September, the price was not only back up to $282 but rising rapidly on its way past $320. Then it came down with volatility, rose slowly fell to just under $260 about two years later. The price bottom just about coincides with the end of his selling.

This is history, and it’s been discussed and analyzed many times. What has not been seen until now is a look at the gold basis and cobasis during this time. Was gold becoming abundant due to selling? Or did something else happen?

Here is a graph showing the continuous gold basis and cobasis, overlaid with the price of the dollar.

Several features are noteworthy:

  • The basis begins to fall on the announcement, but not a lot yet. The cobasis may be arguably said to begin to rise. Both appear to change character.
  • The dollar begins rising immediately (i.e. the price of gold falls), but nothing alarming happens in the basis yet. Almost the entire initial price move occurs, with little move in the basis.
  • We believe this confirms our view that there is a lot of gold out there. This was as clear a case of short selling as can be. Brown wasn’t even selling yet, and the market price was driven down 8.5%. Actually, the market price began falling before the announcement, which suggests that privileged information may have leaked. Yet the market makers handled this with aplomb. The basis moved, but not that much.

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