You are here

Important essays on suppression of gold price

Section: Daily Dispatches

Wednesday March 7, 05:50 PM

Treasury continues drive to halve gold reserves

By Sara Marani

LONDON (Reuters) - The Treasury says it will sell 120 tonnes of gold
in six auctions this year and next, continuing its partly completed
plan to cut the country's gold holdings to 300 tonnes from 715 tonnes.

This third set of 20-tonne auctions will start in May, and continues
Britain's programme to restructure and modernise its reserve holdings
with purchases of foreign currency.

The previous sets of sales were in lots of 25 tonnes each.

Analysts said Wednesday's announcement would disappoint some in the
market and would focus attention on the gold price, languishing at 17-
month lows.

quot;I can't see why they have persisted with this method when every
other seller has consistently used the traditional route through the
market,quot; said Martin Potts, analyst at Williams de Broe.

quot;It gives people the incentive to go short and therefore depress the
price. How does that therefore generate value over and above what
would otherwise be achievable?quot;

The decision to reduce UK gold reserves sent prices crashing in 1999,
with gold reaching a 20-year low of $251.70 in August before
recovering to a two-year high of $338 early in October after 15
European central banks pledged to limit gold sales, lending and
derivatives activity.

The UK Treasury said in a statement that the sales would follow the
final auction in the current series of five sales -- which will
dispose of a total of 125 tonnes of reserve gold -- set for March 14.

quot;There will be six auctions during 2001-02, starting in May 2001,
each of 20 tonnes. These will continue to be conducted on a single,
uniform-price basis,quot; the Treasury said in a statement.

The gold price fell after the news of the sales to $259.80/$260.30 an
ounce, down from the $260.60/$261.10 prevailing before the
announcement and compared with a Tuesday New York close of $260.50/

Analysts said the new sales were not good for the gold market,
especially after lease rates spiked last week on talk of a possible
joint central bank statement on limiting lending further.

quot;This (announcement) measured around the expectation of a joint
statement will disappoint, so I would expect to see some
liquidation,quot; said Andy Smith at Mistui Global Precious Metals.

The gold market has already absorbed 100 tonnes of gold from the
Netherlands since December 1999, the first tranche of a Dutch plan to
sell 300 tonnes over five years.

And the Swiss National Bank is in the midst of selling 1,300 tonnes
of excess gold reserves through the Bank for International

The producer-funded World Gold Council (WGC) criticised the UK
Treasury. quot;We are disappointed that the government has chosen to
persist in a method of sale that has proved unnecessarily disruptive
to the market,quot; said Robert Pringle, head of public policy and
research for the WGC.

But the Bank of England (BoE) said it had taken into account the
recommendations of a recent National Audit Office report on the gold
sales quot;which found that the Treasury had met its objective to sell in
a fair and transparent manner while achieving value for money.quot;

After next week's auction the Treasury will have sold 275 tonnes,
leaving 140 to go, which makes the latest announcement 20 tonnes
short of the original total.

quot;They will end up having sold around 395 tonnes -- so what happened
to that 20 tonnes? That leaves room for other sellers,quot; said Smith.

But the BoE said the missing 20 was irrelevant and a case of
rounding, making no strategic difference to the overall picture.

quot;In 1999 we said we would reduce the 715 (tonnes) to around 300 -- it
was never going to be in exactly even tranches, because it isn't
exactly divisible by 25 or 20,quot; a BoE spokesman told Reuters. quot;So it
was decided that smaller amounts would be easier to absorb.quot;