QUOTE
The handling of the Bank of England's announcement in May 1999 that it
would sell 415 tonnes of gold. In GATA's view this was a political decision to
keep the gold price below USD300oz at the time. The public announcement of
the sale seemed to ensure the UK would achieve the lowest possible price rather
than the highest. In fact, the price subsequently collapsed to USD252/oz and the
first sale of 25 tonnes was made at a price of USD261.20/oz, or USD26/oz below
the price at the time of the announcement. Unlike the case of major European
central banks, the UK's gold reserves are ultimately controlled by HM Treasury,
i.e. politicians not the Bank of England. The Bank of England's action followed the
failure of the US (in a high profile campaign by Treasury Secretary Robert Rubin
and supported by the UK Government) to achieve IMF gold sales (officially to fund
debt-relief for developing countries and actually opposed by many of them).
From the UK's standpoint, the handling of the sale was a fiasco. We believe the
current loss to UK taxpayers of about USD2.0bn makes a mockery of Tony Blair's
comment to the House of Commons:
"It was carried through perfectly sensibly and we actually got the best deal for the
country".
In their public comments, neither the Prime Minister, the Chancellor, HM Treasury nor
the Bank of England could agree on who was ultimately responsible for the decision to
sell. Unusually, the former head of foreign exchange and gold at the Bank of England,
Terry Smeeton, even released a statement in which he said:
"It's clearly a Treasury decision in which the Bank has had to acquiesce".
There are precedents for the UK coming to the rescue of the US (and vice versa) and
the banking system in the past. For example, the UK tried in vain to support the
doomed Bretton Woods system in the late-1960s to early-1970s. Between 1958 and
1965, the amount of gold in the UK's reserves varied between 2,000 and 2,500 tonnes,
but during 1966 and 1972, the UK Treasury sold 1,356 tonnes in a futile attempt to
support the value of the US dollar versus gold. Once again, the cost of this ill-fated
scheme was borne by the British public.
---
In a lawsuit filed in December 2001 by Reginald H. Howe versus Bank for International
Settlements, Alan Greenspan et al, it was alleged that "according to reliable reports
received by the plaintiffs…", Sir Edward George, Governor of the Bank of England,
made the following comment to Nicholas J. Morrell, Chief Executive of Lonmin plc in
the aftermath of the Washington Agreement:
"We looked into the abyss if the gold price rose further. A further rise would have taken
down one or several trading houses, which might have taken down all the rest in their
wake. Therefore at any price, at any cost, the central banks had to quell the gold price,
manage it. It was very difficult to get the gold price under control but we have now
succeeded. The US Fed was very active in getting the gold price down. So was the UK."
Unexpected sources of new gold supply also suddenly emerged. For example, in
October 1999, the Central Bank of Kuwait publicly announced that it would lend its
entire holding of 79 tonnes to the Bank of England to improve liquidity in the gold
market! Additional US military spending for Kuwait was announced shortly after. The
Kuwait news was soon followed by Jordan selling roughly half its official gold reserves
of 26 tonnes. Chile sold 34 tonnes in June 2000 and Uruguay transferred all 57 tonnes
of its gold reserves to London for lending the following month.
---
One GATA supporter, Andrew Hepburn asked the IMF "why does the IMF insist that
members record swapped gold as an asset when a legal change of ownership has
occurred?". The IMF's reply was:
"This is not correct: the IMF in fact recommends that swapped gold be excluded from
reserve assets (see Data Template on International Reserves and Foreign Currency
Liquidity, Operational Guidelines, para. 72,)."
Despite this, public filings from a number of central banks contradict the IMF's
statement. Italy's central bank describes Gold and Gold Receivables in its balance
sheet as follows:
"Comprises the gold owned by the Bank of Italy and receivables in respect of deposits denominated in gold and swaps".
IMF's reserves
and foreign currency liquidity template under the Special Data Dissemination Standard
(SDDS), gold swaps undertaken by the BSP with non-central banks shall be treated as
collateralized loan. Thus, gold under swap arrangement remains to be part of reserves
and a liability is deemed incurred corresponding to the proceeds of the swap."
--
would sell 415 tonnes of gold. In GATA's view this was a political decision to
keep the gold price below USD300oz at the time. The public announcement of
the sale seemed to ensure the UK would achieve the lowest possible price rather
than the highest. In fact, the price subsequently collapsed to USD252/oz and the
first sale of 25 tonnes was made at a price of USD261.20/oz, or USD26/oz below
the price at the time of the announcement. Unlike the case of major European
central banks, the UK's gold reserves are ultimately controlled by HM Treasury,
i.e. politicians not the Bank of England. The Bank of England's action followed the
failure of the US (in a high profile campaign by Treasury Secretary Robert Rubin
and supported by the UK Government) to achieve IMF gold sales (officially to fund
debt-relief for developing countries and actually opposed by many of them).
From the UK's standpoint, the handling of the sale was a fiasco. We believe the
current loss to UK taxpayers of about USD2.0bn makes a mockery of Tony Blair's
comment to the House of Commons:
"It was carried through perfectly sensibly and we actually got the best deal for the
country".
In their public comments, neither the Prime Minister, the Chancellor, HM Treasury nor
the Bank of England could agree on who was ultimately responsible for the decision to
sell. Unusually, the former head of foreign exchange and gold at the Bank of England,
Terry Smeeton, even released a statement in which he said:
"It's clearly a Treasury decision in which the Bank has had to acquiesce".
There are precedents for the UK coming to the rescue of the US (and vice versa) and
the banking system in the past. For example, the UK tried in vain to support the
doomed Bretton Woods system in the late-1960s to early-1970s. Between 1958 and
1965, the amount of gold in the UK's reserves varied between 2,000 and 2,500 tonnes,
but during 1966 and 1972, the UK Treasury sold 1,356 tonnes in a futile attempt to
support the value of the US dollar versus gold. Once again, the cost of this ill-fated
scheme was borne by the British public.
---
In a lawsuit filed in December 2001 by Reginald H. Howe versus Bank for International
Settlements, Alan Greenspan et al, it was alleged that "according to reliable reports
received by the plaintiffs…", Sir Edward George, Governor of the Bank of England,
made the following comment to Nicholas J. Morrell, Chief Executive of Lonmin plc in
the aftermath of the Washington Agreement:
"We looked into the abyss if the gold price rose further. A further rise would have taken
down one or several trading houses, which might have taken down all the rest in their
wake. Therefore at any price, at any cost, the central banks had to quell the gold price,
manage it. It was very difficult to get the gold price under control but we have now
succeeded. The US Fed was very active in getting the gold price down. So was the UK."
Unexpected sources of new gold supply also suddenly emerged. For example, in
October 1999, the Central Bank of Kuwait publicly announced that it would lend its
entire holding of 79 tonnes to the Bank of England to improve liquidity in the gold
market! Additional US military spending for Kuwait was announced shortly after. The
Kuwait news was soon followed by Jordan selling roughly half its official gold reserves
of 26 tonnes. Chile sold 34 tonnes in June 2000 and Uruguay transferred all 57 tonnes
of its gold reserves to London for lending the following month.
---
One GATA supporter, Andrew Hepburn asked the IMF "why does the IMF insist that
members record swapped gold as an asset when a legal change of ownership has
occurred?". The IMF's reply was:
"This is not correct: the IMF in fact recommends that swapped gold be excluded from
reserve assets (see Data Template on International Reserves and Foreign Currency
Liquidity, Operational Guidelines, para. 72,)."
Despite this, public filings from a number of central banks contradict the IMF's
statement. Italy's central bank describes Gold and Gold Receivables in its balance
sheet as follows:
"Comprises the gold owned by the Bank of Italy and receivables in respect of deposits denominated in gold and swaps".
IMF's reserves
and foreign currency liquidity template under the Special Data Dissemination Standard
(SDDS), gold swaps undertaken by the BSP with non-central banks shall be treated as
collateralized loan. Thus, gold under swap arrangement remains to be part of reserves
and a liability is deemed incurred corresponding to the proceeds of the swap."
--