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Chancellor under fire for gold sale as price nears $600

Chancellor under fire for gold sale as price nears $600
By Gabriel Rozenberg, Economics Reporter
The Times
March 21, 2006

FORECASTS that gold prices are set to smash through the $600-an-ounce barrier saw Gordon Brown come under renewed pressure last night over his controversial decision to sell the majority of Britain’s gold reserves.

Merrill Lynch predicted that gold would hit $600 an ounce in the long term after its recent rise above $500. Last month the precious metal hit a 25-year high of $579.50 an ounce amid concern among investors that America’s huge trade gap would force a weakening of the dollar.

The Chancellor sold 395 tonnes of Britain’s gold reserves between 1999 and 2002, generating $3.5 billion. At yesterday’s London closing price of $554.10 he would have generated more than $7 billion (£4 billion).

Vincent Cable, the Liberal Democrat treasury spokesman, said: “The decision to diversify Britain’s foreign reserves away from gold is a sensible one and one I have supported but the Treasury’s impatience over timing has obviously been very costly.”

He added that the Treasury was repeatedly guilty of failing to realise the best value for its assets, referring, in particular, to the sale of government shares in QinetiQ, the defence research group.

The sale of Britain’s gold reserves — which are stored in vaults under the Bank of England, alongside billions of pounds of bullion owned by other institutions — was attacked even in 1999 for poor timing. Gold prices fell $5 an ounce on the news and swiftly tumbled to a 20-year low. The scheme was also suspected by some of being a stealth plan to ease Britain’s entry into the European single currency.

Yesterday’s criticism of Mr Brown came as worse than expected public finances data left the Chancellor’s chances of fulfilling deficit forecasts in tomorrow’s Budget as “touch and go”.


LINK: http://business.timesonline.co.uk/article/0,,16849-2095653,00.html