Bobby Dazzler to Brown’s Bottom
Gold is certainly dazzling investors this year. With the precious metal maintaining recent highs, uncharacteristically mirroring equity returns, and surprising commentators better used to obvious ‘safe haven’ status, it is interesting to reflect on its historic place in global financial stability. Perhaps the current phenomenal appetite by the Chinese, looking for a hedge against the potential economic instability of the world’s second largest economy amid a residential real estate crisis, reflects more of its traditional place in a financial cycle.
And where does ‘Bobby’ fit in? Sir Robert Peel, as Home Secretary, formed the Metropolitan London Police Force in 1829. The constables were known as ‘bobbies’ or ‘peelers’. Earlier in his career, he chaired the Bullion Committee at Westminster, charged with restoring national finances after expensive wars with France which had forced Britain to depart from the gold standard. The ‘Resumption of Cash Payments Act’ placed the country once more on the gold standard, and despite considerable scepticism, it soon became evidence of Britain’s possession of a sound currency, and economy, for the remainder of the nineteenth century.
His ‘Bank Charter Act’ of 1844 set the limit of how much currency the Bank of England could issue according to its holdings of gold and began the process of centralising note issuance. This became the second pillar of economic stability upon which the United Kingdom relied until 1914.
So, Sir ‘Bobby’ Peel may well have understood the current preoccupation of the Chinese with a dazzling precious metal, at a time of financial, domestic and global instability. He would have been less impressed with the sale of more than half of the UK’s gold bullion reserves between 1999-2002 at an average price of around $275 per ounce! Brown’s Bottom, indeed.
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