Britain stuns markets with plan to sell gold reserves

Sale plan brings price of bullion close to its lowest level in 20 years Mines' share prices tumble and the rand weakens

BRITAIN WILL be selling more than half of the gold held in the reserves at the Bank of England, the Treasury announced yesterday, in a move that signals the end of an era for the precious metal in the world monetary system.

The surprise announcement sent the price of gold plummeting more than $9 lower to $279.90 an ounce, close to the lowest level for 20 years. The Treasury's decision was seen in the gold market as a forerunner of similar announcements by other central banks and the International Monetary Fund.

Indeed, the UK move sets an example for the IMF, which Gordon Brown has been pushing to sell some of its gold reserves in order to finance more generous debt relief for poor countries. Group of Seven leaders are expected to announce the plan at their summit in Koln next month.

The World Gold Council described the news as "damaging". It suggested the move was a actually a precursor to UK entry into the single currency, pre-empting the referendum on membership.

The shock hit share prices in gold-mining. South Africa's All-Share index fell by nearly 1 per cent, with AngloGold's price down nearly 5 per cent at 278.2 rand. The South African currency also weakened.

The proceeds from the UK's sale of 125 tonnes (around 4 million fine troy ounces) of gold - 3 per cent of total reserves - this financial year will be invested instead in interest-bearing dollar, euro and yen assets. Over the next few years the plan is to reduce gold reserves from 715 tonnes to 300 tonnes.

The sales will take place through a series of auctions every other month starting on 6 July. Members of the London Bullion Market Association and other institutions with gold accounts at the Bank of England, will be allowed to enter bids.

Andy Smith, commodities analyst at Mitsui, said: "The auction method ... will allow the market to gauge the extent of the risk."

Successful bidders will be allocated 400 ounce ingots, known as "London Good Delivery Bars" containing at least 995 parts per 1,000 pure gold, sitting in the Bank's vaults in Threadneedle Street. Although they will be encouraged to leave the gold in accounts at the Bank, they will also be allowed to take physical delivery of the bars.

The Treasury has left itself some leeway to alter the size and timing of the auctions depending on market conditions. A spokesman said: "We do not intend to try and play the market."

The UK is not the first country to reduce the level of gold in its reserves. Canada sold gold in 1979. More recently Belgium and the Netherlands have sold large amounts, as did Australia and Argentina in 1997.

Last month Switzerland severed the link between the Swiss franc and gold and passed legislation permitting its Central Bank to reduce its holdings by up to 1,300 tonnes. The US, Germany, France and Italy will hold the largest remaining gold reserves.

The UK's reserves are worth nearly $37bn, including the gold, while foreign currency liabilities amount to $22bn. The 715 tonnes of gold are worth about $6.5bn, or roughly half the net reserves.

The physical amount of gold held in the UK's reserves has barely changed since 1970. But the market value, having soared to reach a peak of about $15bn in 1980, has fallen substantially.

Outlook, page 22

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Content Writer - Global Financial Services

£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Web Developer - PHP

£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Loan Underwriter

£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory
Ashes 2015: Alastair Cook not the only one to be caught in The Oval mindwarp

Cook not the only one to be caught in The Oval mindwarp

Aussie skipper Michael Clarke was lured into believing that what we witnessed at Edgbaston and Trent Bridge would continue in London, says Kevin Garside
Can Rafael Benitez get the best out of Gareth Bale at Real Madrid?

Can Benitez get the best out of Bale?

Back at the club he watched as a boy, the pressure is on Benitez to find a winning blend from Real's multiple talents. As La Liga begins, Pete Jenson asks if it will be enough to stop Barcelona
Athletics World Championships 2015: Beijing witnesses new stage in the Jessica Ennis-Hill and Katarina Johnson-Thompson heptathlon rivalry

Beijing witnesses new stage in the Jess and Kat rivalry

The last time the two British heptathletes competed, Ennis-Hill was on the way to Olympic gold and Johnson-Thompson was just a promising teenager. But a lot has happened in the following three years
Jeremy Corbyn: Joining a shrewd operator desperate for power as he visits the North East

Jeremy Corbyn interview: A shrewd operator desperate for power

His radical anti-austerity agenda has caught the imagination of the left and politically disaffected and set a staid Labour leadership election alight
Isis executes Palmyra antiquities chief: Defender of ancient city's past was killed for protecting its future

Isis executes Palmyra antiquities chief

Robert Fisk on the defender of the ancient city's past who was killed for protecting its future