Fury over the great gold sale - Daily Mail

by Alex Brummer, City Editor, Daily Mail

THE GOVERNMENT plans to press ahead and complete its
sale of 60% of Britain's gold reserves by the end of
the year despite demands from senior Tories that the
auction be halted.

The price of bullion soared to around £204 an ounce
($300) on global markets this week because investors tend to
turn to gold at times of turbulence in the world
economy, seeing it as a hedge against future inflation.

Critics of Chancellor Gordon Brown's gold sales argue
he has been selling off a national asset too cheaply
as part of a broader plan to prepare Britain for entry
into the single currency. Around 40% of the cash raised
from gold sales has been reinvested in the troubled euro.

Senior Conservative Sir Teddy Taylor told a General
Election meeting it was a matter of 'utmost urgency' that
the 'scandalous' sales of the nation's gold reserves were halted.
He described the gold auctions as 'part of a
devious plot to prop up the euro'.

Brown's 1998 decision to reduce Britain's gold reserves
from 715 tons to 300 tons by the end of 2001 has been
surrounded by controversy.

The move unsettled global gold markets and sent the
price of bullion tumbling. This provoked widespread international
protests from gold mining unions in Southern Africa as jobs
came under threat. The market became so
weak that in September 1999 leading central banks from
around the world agreed to restrict gold sales.

Britain, it was agreed, could continue with its gold
sales but has been required to show more sensitivity
to market conditions.

Brown's decision to re-invest a large part of the
proceeds from gold sales in the euro has been seen by
critics as part of a plan to join the single currency
if Labour is re-elected. It has also been viewed as bad
economics in that the single currency has been almost
permanently on the slide since its introduction on
January 1, 1999.

But a study by the National Audit Office has found
that despite the fall in the euro and the difficulties
in the bullion market, the Government has made a modest
profit of £23m on the sale of gold reserves. This is
because 40% of the bullion sold was turned into dollars
which have been rising on the foreign exchange markets.

However, it has also been argued that a better price
could have been obtained if the Chancellor had exercised
better timing and been more patient.

With Labour intending to press ahead with gold sales,
plans are in place for five auctions of 20 tons each
this year. With prices having soared, it should collect
a much better price than when the auctions began in 1998.

The present strong international demand for gold stems
from the belief that the US decision to cut interest rates
aggressively this year could lead to a new bout of
inflation, which could bring an end to the rise of the
dollar. Gold prices normally climb when the dollar
weakens, as bullion is seen as a barrier against inflation.

Should Britain ever join the single currency, the
transition could be smoothed due to a large proportion
of the nation's financial reserves now being held in
the euro.

© Associated Newspapers Ltd., 23 May 2001
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