Gold: Does Gordon Brown’s regret selling half of Britains’ gold reserves 10 years ago?

A decade ago Gordon Brown started to sell-off Britain’s gold reserves – at the time the price of gold was $282 an ounce, today it is $900-plus.

Price of gold since Britain sold half of its reserves in 1999 Photo: World Gold Council

On May 7, the Treasury said it was to hold a series of auctions to sell-off half of Britain’s 700 tons of gold reserves with the proceeds being invested in foreign currencies, including the euro.

At the time the Treasury said it wanted to “achieve a better balance in the portfolio” by increasing the proportion of reserves held in foreign currency. With nearly 50 per cent of the net foreign currency reserves invested in gold, the exposure to a single asset was too great, it said.

At the time gold was trading around $282 an ounce. During the course of 17 auctions, between July 1999 and March 2002, the Treasury raised £2.2bn at an average price of $276.60 an ounce.

Today gold is trading at around $900 an ounce.

John Mulligan at the World Gold Council said: “The announcement that Gordon Brown was going to sell off (415 tonnes) of the UK’s gold reserves occurred on 7 May 1999, but the gold was actually sold in stages, totalling 395 tonnes, between 1999 and 2002. The price (pm fix) on the day of the announcement was $282.40 / oz. or £172.84.

“The announcement had a negative impact on the price which slid to a low of 252.80 in $ terms (on 20 July 1999; its £ low came a few months later), before gradually recovering and rising fairly consistently ever since. 10 years later, yesterday, the gold price (pm fix of 7 May 2009) stood at $912.25 / £606.43 per ounce (a rise in value of 223pc, or 251pc in sterling terms).

The Treasury has defended its decision as a way of diversifying reserves and cutting risk. It said as a result of the programme, a one-off reduction in risk of approximately 30pc was achieved and that the auction programme ‘scored well on value for money grounds’.

Mark Dampier, head of research at Hargreaves Lansdown said: “This has to be one of his worst clangers and I’m not sure he thought much about the decision. Before you buy or sell something it’s common sense to see what the price has done – by looking at the price chart going back 20-25 years. Gold had peaked at about $850 and come all the way down.”

Source: Telegraph.co.uk, 08 May 2009
By: Paul Farrow

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