Gold sale switch has cost UK 26 million pounds after drop in Euro

THE EURO'S plunge in value has cost the Government pounds 26m, the World Gold Council claimed yesterday. When the Government sold part of its gold reserves in June, it invested 40 per cent of the proceeds into the euro, which has dropped by 16 per cent since its launch in January.

The figure comes after the euro dropped below the psychologically important $1 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 per cent was also invested in the dollar and 20 per cent in the Japanese yen.

He said: "The Government used proceeds to buy a balanced portfolio of currency. When some currencies fall others rise. Yes, we bought euros as we announced at the time, but we also bought dollars and yen which have strengthened. It is a balanced portfolio." He added: "We will continue to have a balanced portfolio."

Sale of the gold has seen 75 tons go under the hammer this year, with the latest sale of 25 tons taking place at the end of last month.

The sales have been criticised by the World Gold Council, which has argued that when the euro is at an all-time low and there is concern about credit expansion in the United States, the UK should be considering increasing gold stocks.

Gary Mead, head of research at the World Gold Council, said: "The UK before auction had 17 per cent of reserves in gold. By the end of the sales we will be down to 7 per cent. We do not think it is sensible to sell below the world average of 15 per cent."

He added there would be no immediate consequences from the sales, but added: "If there is a major currency crisis, for example if the euro doesn't recover or sterling is given a battering, what do we have to fend off these crises?"

The gold auctions were first announced by Chancellor Gordon Brown in May as part of a plan to cut Britain's gold reserves and instead boost its levels of foreign currencies.