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Strike a blow by exploiting bargain prices for real metal
Another sign that the central banks must be
REALLY worried about the vulnerability of
the shorts....
* * *
Gold glisters a little less brightly
for France's new finance minister
By Jo Johnson in Paris
and Kevin Morrison in London
Financial Times
Thursday, April 15, 2004
http://news.ft.com/servlet/ContentServer?
pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1079420357382&p=101257
1727166
In the space of two weeks, Nicolas Sarkozy, France's
determined new finance minister, has achieved what
would once have been unimaginable.
Under pressure to restore order to the French public
finances, Sarkozy has persuaded the Bank of France
to reconsider what Jean-Claude Trichet, president of
the European Central Bank, once described as
France's "near-tribal obsession" with gold.
Of all the leading nations, France, which last sold gold
in 1968, has long been seen as the most reluctant
seller of bullion.
Yesterday, however, Christian Noyer, Trichet's
successor at the Bank of France, signalled in an
interview with the French newspaper Le Parisien an
about-turn on a policy that has underpinned the
central bank since its creation by Napoleon after
the Revolution.
Sarkozy has not yet secured a total victory over the
bank's mandarins, but the Bank of France is now
considering selling 16 percent of its gold.
Gold accounts for 52 percent of the Bank of France's
reserves, compared with a eurozone average of 41
percent and 8.7 percent for the Bank of England,
according to the World Gold Council. France is the
world's fourth-largest gold holder, after the United
States, Germany, and the International Monetary
Fund.
The Bank of France has a physical relationship with
the metal.
France's hoard of 3,025 tonnes of gold is stored in
vaults that cover a hectare of ground 27 metres
below the level of the River Seine. Included in this
hoard is the gold that the Bank of France has
pledged to the European Central Bank in return
for France's 16.5 percent stake in the guardian of
the eurozone's monetary stability.
Noyer said: "Through an agreement between central
banks, we have the possibility to sell around 500
tonnes of gold over five years starting from this
autumn. But the decision to sell has not yet been
taken but will be this autumn in complete
independence by the Bank of France."
Noyer made one thing very clear. The finance
minister will not be able to get his hands directly
on either the proceeds of any gold sale -- 5.5 billion
euros n at today's price -- or even on the interest.
The government's finances will benefit only
indirectly through an increase in dividends from the
Bank of France if it were able to re-invest proceeds
into higher-returning assets.
Noyer said: "Gold cannot leave our books without
being replaced by another asset. What could be
envisaged is converting a small amount of gold,
which is not yielding any interest, into a more
lucrative investment."
He added: "The state, shareholder in the bank,
would have the prospect of receiving larger dividends.
But the central bank's ability to make profits is very
marginal to redressing the public finances."
This is far from the bonanza Sarkozy wants, but, with
France's public debt set to hit 67 percent of GDP next
year, every penny counts.
The state, he told parliament yesterday, could receive
additional dividends of up to 200 million euros ($166
million, 132 million) over five years if the bank sold
some of its gold.
France is not alone. When Gordon Brown, the UK
chancellor of the exchequer, announced the proposed
sale of more than half of the Bank of England's
715-tonne holding in 1999, the gold price fell to a
20-year low of $252 an ounce. It has since risen by 60
percent to just over $400.
Brown's move led to the Central Bank Gold Agreement
in September 1999 under which 15 European central
banks agreed to conduct orderly sales of 400 tonnes
a year for four years. A new accord limits sales to 500
tonnes a year over the five years to September 2009.
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