GOLD

The government sold 415 tonnes of gold at an average price of $274.92 oz in 1999. The current price, at September 2003, is $376 oz. The loss to our reserves was therefore £1,033,000,000.

Gordon Brown is preparing to slap down Mervyn King, the new Governor of the Bank of England, and ignore his concerns over a change to the inflation target ordered as part of the Government's "prepare and decide" policy on the euro. Mr King said on Wednesday, just six weeks into his new job, that he was unhappy about the proposed change and the City is now bracing itself for the most serious row between the Bank and the Treasury for six years. Mr Brown wants to switch from the retail prices index (RPI) to the harmonised index of consumer prices (HICP), a measure which excludes housing costs and is therefore a much easier target to hit, as it generally comes in 0.5pc to 1pc lower.Mr King's opposition to Mr Brown's policy sets the scene for the first major row between the Treasury and the Bank since 1997, when Sir Edward George was extremely angry at Mr Brown's decision to remove the Bank's responsibility for regulating the banking system and instead hand it over to the new Financial Services Authority. He was also said to be displeased at Mr Brown's decision to sell off Britian's gold reserves, but never made his views public.(Daily Telegraph 16/08/2003 )

The government has sold 395 tonnes of our gold reserves into a rising market. It has lost £175m. It has also lost more money by investing a large proportion of the $3.3bn proceeds as a support operation for the euro. The value of gold rose by £40 an ounce since the government’s selling started. (FT 6/3/02)

The fall in the euro has wrong-footed Gordon Brown, the Chancellor, who last May announced plans to sell more than half the country's reserves of gold and instructed the Bank of England to reinvest 40 per cent of the proceeds in euros. Mr Brown described the controversial plan as a sensible move aimed at diversifying the reserves. However, the euro's weakness has led to a direct loss of £34 million. Despite some offsetting gains on dollars and yen, the overall loss is still £26 million. (Telegraph 4/5/00)

If Britain joins the EMU then gold and foreign currency reserves will be transferred to the European Central Bank. UK banks may also have to deposit a minimum reserve sum with the ECB, as do German banks with the Bundesbank. (FT 11/1/97) The deposit system allows the Central Bank to exert direct control over commercial banks. UK gold and currency reserves were GBP25bn in December 1997. (FT 3/12/97). The ECB will force commercial banks to deposit with the ECB minimum reserves of 2% of their total short term deposits and securities up to two years maturity (FT 15/10/98)

Germany, France and Italy are hoarding gold while its value falls because of fears that the EMU might collapse. It could provide the backing for new national currencies. (D Telegraph 23/1/98)

Gordon Brown, Chancellor of the Exchequer said 40% of the proceeds of the Bank of England's gold sale would be used to buy euros. (Various sources 8/5/99)

For the two weeks ended April 6 1999, non-commercial short interest in gold totalled 88,363 contracts, according to the Commodity Futures Trading Commission in Chicago. That was the largest short position in history. Short interest has declined in subsequent weeks but still remains at extremely high levels, equal to about 10% of total production last year. ... Long Term Capital had a large short position in gold -- estimated to be 300 tons. When Federal Reserve officials brokered together a consortium to rescue Long Term Capital last August, they were aghast at the extent of the firm's gold short. Moreover, if Long Term's Wall Street clients were mimicking the once-legendary hedge fund's strategies, as some contend, many of the same firms given the task of saving the hedge fund (and thus, "the system") were also short gold. Thus, a rise in the metal would not only add to the misery at Long Term Capital, but many of the same institutions responsible for its rescue. The Central Bank of Italy and Fed officials were invested in Long Term Capital. The price of gold tumbled $7.60 an ounce to $283.10 after the Bank of England, much to the gold community's surprise, announced its plans to sell up to 125 tons, or almost 60% of its reserves, between now and March 2000. The Gold Antitrust Action Committee has retained securities law specialist Berger & Montague to assist in the "investigation of the alleged manipulation of the gold market," according to a press release from the organisation. ( The Street.com 18/5/99) http://www.thestreet.com/markets/marketfeatures/744611.html

Sir Peter Tapsell (Louth and Horncastle): The decision (to sell part of our gold reserves) is a threat to the London gold market because it reduces the Bank's ability to act as what is known as a swing lender to the market. Many market participants believe that after the sales have been completed, the Bank will not have enough gold to fulfil its function as a swing lender and so retain the centre of the world gold market in London. ...About 20 per cent. of the proceeds are to be invested in yen--so the Treasury tells us. Yet, by lending gold we could earn a better return, as the rate of interest on gold is higher than that on yen investments. I have already mentioned that 40 per cent. is to be invested in euros, yet we hear that the Netherlands is already taking steps to build up its foreign reserves to protect the guilder if the euro were to collapse. The Treasury has argued that gold makes up almost half of the unhedged or "net reserves", to quote its press release. That concept of net reserves is arbitrary, as it all depends on what liabilities are deducted from gross assets. So far as I have been able to discover, such a concept has never been used by any other country; international gold figures are always quoted in terms of gross reserves. After the sale of 415 tonnes of our gold, as is intended--125 tonnes straight away and 290 tonnes in the medium term--our gold reserves will be only 7 per cent. of our gross reserves, which is slightly less than those of Albania.... The immediate effect has been the loss of £400 million of our taxpayers' reserves, and so far the only beneficiaries of this event have been the foreign finance houses, which have been shorting the gold market... It is ironic that the Chancellor, who is understandably keen to help the poorer nations of the world, seems also to be keen to persuade the IMF to sell gold. He hopes that it will do so, but many poorer countries would be extremely hard hit by that. Hon. Members who are interested might care to read the recently published pamphlet entitled "Gold mining's importance to sub-Saharan Africa and heavily indebted poor countries", because 41 HIPCs mine gold, and it is an extremely important part of the exports of nine of those. (Hansard debate Wednesday 16 June 1999)

The Treasury's announcement of the gold auction caused a $30 slide in the bullion price and a $600 million loss in the value of our gold reserves. The loss arising from the Chancellor's reserve asset management "fine tuning" more than wiped out any gains he hoped to enjoy from interest earned on euro, dollar and yen deposits. The announcement was made at the time when the net short positions on Comex rocketed from less than 5,000 to 88,000. It also gave rise to the perception that the Chancellor was seeking to "front run" the IMF gold sales that he had personally championed. Not only has this created a singularly bad impression with highly indebted poor countries whose plight the IMF sales were designed to alleviate, the price fall has also made many of these countries who are gold producers materially worse off. The Chancellor needs to explain more convincingly why the proceeds should be invested in the European single currency, which continues to hit new lifetime lows. It is suggested that the gold sale was designed to prop up the euro and is part of preparations for Britain's entry into the single currency, and removes the politically explosive spectre of a large proportion of Britain's gold reserves being removed physically to Frankfurt. (Sunday Telegraph Business Comment 11 July 1999)

The governor of the Bank of England, Eddie George, raised strong objections to the government's decision to sell more than half Britain's gold reserves, but was outgunned by a coalition of the treasury and some of his own senior officials. (Guardian 7/8/99)

The euro's plunge in value has seen money invested by the Government into the currency from sale of its gold reserves lose £26 million. The Government has invested 40% of proceeds from sale of its gold reserves into the euro, which has dropped by 16% since launch in January. This has been calculated by the World Gold Council, which represents gold mining companies, to have lost the investments £26 million. The figure comes after the euro dropped below the psychologically important one dollar point on Friday, after months of sliding. It slipped to 0.9990 dollars, although closed back up at 1.0017 dollars. A spokesman for the Treasury defended the move, saying the investment was part of a balanced portfolio - 40% was also invested in the dollar and 20% in the Japanese yen. Sale of the gold has seen 75 tonnes go under the hammer this year, with the latest sale of 25 tonnes taking place at the end of last month. (Associated Newspapers Ltd., 5 December 1999)

The Prime Minister told the House Of Commons less than the whole truth about nation's gold. He said, "we sold gold on the technical advice of the Bank of England." But the gold in the bank is the state's, not the Bank's. It forms part of the official reserves, which are the Treasury's responsibility, with the Bank acting as its agent in the market. It is now plain that the Governor of the Bank of England opposed the decision to sell and resisted it, but the call was not his to make. (Daily Telegraph 9/8/99)

The Euro is a purely electronic currency, the first of its kind. Over the next four years, the entire monetary system of Europe will come under great stress as this new experimental currency moves through a transition process. Other governments are watching the Euro closely for if the Euro remains as an electronic currency only (other than coins), then the future may look very different. The process of demonetization of gold and the liquidation of gold reserves is a first step toward creating a new monetary system for the world. To many, the goal is to eliminate the underground economy. . Some are also arguing that this will eliminate the drug traffic at the same time not to mention illegal arms sales etc. While this is debatable, the trend is clearly a decisive one than cannot be denied. If currency is purely electronic then governments will be able to collect every cent of tax they deem fit. (The Euro-Bank Report Princeton Economic Institute 28/5/99)

The Governor of the US Federal Reserve said there would be no sales of gold at Fort Knox. The Governor of the Bank of France said, "one does not sell one's family jewels." French gold reserves are four times Britain's and Germany's are bigger still. (D Telegraph 9/8/99)

Finance ministers have agreed that gold euros can be minted in limited quantities. They will be legal tender in the countries where they are issued only. So there will be a single currency but some currency will not cross national borders. (European 30/11/98)

Whether the UK opts out of abolishing the pound or not the Bank of England must subscribe to the capital of the European Reserve Bank and transfer "foreign reserve assets and contribute to reserves on the same basis as the national central bank of a member state whose derogation has been abrogated" (i.e. which has joined the single currency)(UK opt out Clause 10b - Maastricht Treaty)

If the UK enters monetary union the European Central Bank, under the terms of the Maastricht Treaty, will 'hold and manage the official foreign reserves of the Member State'. For Britain this would mean surrendering control of $46,000million (£28 million) of gold reserves".(Britain: Free to choose. by Bill Jamieson 1998)