- LONDON (AFP) - Britain stunned world markets on Friday
with a decision to sell more than half of its gold stocks
from July in favour of holding cash.
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- The announcement astonished dealers on
the gold market, prompting a dramatic slump in prices.
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- The gold spot price on the London Bullion
Market fell below 280 dollars an ounce during the day, before picking up
to 282.55 dollars on bargain hunting. The metal had closed at 288.75 dollars
on Thursday.
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- The Treasury said that it planned to
sell an initial 125 tonnes of gold this year.
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- Over three or four years, national gold
reserves will be reduced by 415 tonnes to about 300 tonnes. The current
715-tonne stocks are worth 6.5 billion dollars, the government said.
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- The Bank of England will sell the gold
at auctions to be held every other month, starting on July 6.
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- A Treasury spokesman said: "We are
setting out for the market today where we want to end up and the pace we
want to take it."
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- He said that the proceeds would remain
in Britain's official reserves in the form of currency. "This is all
about the structure of the family silver, not selling it," he said.
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- Britain is chasing "a better balance
in the portfolio by increasing the proportion held in currency".
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- A spokesman said that the proceeds from
the gold sales would be invested in foreign currency in the following proportions:
40 percent of receipts will be converted into euros, 40 percent into dollars
and 20 percent yen.
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- Analysts were caught off guard by the
announcement.
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- A precious metals analyst at Mitsui Bussan
Commodities, Andy Smith, said: "Not many people in the market thought
the UK would sell."
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- He said of the planned sale: "It's
huge, it's incredibly important and the market has lost a lot."
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- An analyst at CRU Research house, Gillian
Moncur, said that the surprise sale would likely herald further official
gold sales around the world.
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- "Gold is becoming an outdated asset,"
she said.
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- The market has for weeks now been in
a nervous state because of a number of international initiatives to sell
gold.
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- The International Monetary Fund (IMF)
said late last month that it will seek to ease poverty in the world's poorest
nations by selling some of its gold reserves.
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- Several industrial countries, including
Britain, the United States and Japan, have endorsed the sale of up to 10
million ounces of IMF gold to help the poor.
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- The prospect of IMF sales comes as Switzerland
prepares to sell gold as monetary compensation for Nazi victims.
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- Switzerland has also pledged to sever
the legal link between the Swiss franc and gold.
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- London insisted that its sale was not
part of a coordinated move to reduce official gold reserves.
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- "This is not a coordinated move,"
the Treasury said.
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- But dealers braced for a flood of metal
from the official sector.
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- GNI trading house said: "A series
of sales from the BoE (Bank of England), coupled with sales from the IMF
and SNB (Swiss National Bank) paint a clear indication that official sales
will be at a high level for the next few years."
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- Managing director of Gold Field Mineral
Services research group, Philip Klapwijk, added a note of calm.
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- "For the last 10 years, central
banks have been net sellers and in that sense, it is not really surprising,"
he said.
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- Nonetheless, the British sale is important
in global terms, coming in at five percent of annual gold production.
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- GFMS said that global mine production
is 2,500 tonnes per year. The IMF said that global gold reserves stand
at more than 100,000 tonnes, of which some 60,000 tonnes is held by the
private sector.
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- The Treasury said that even after selling
the lion's share of British gold, Britain would be left with enough precious
metal to participate in the European single currency.
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- Had Britain joined the first wave of
countries adopting the single currency, it would have deposited 140 tonnes
of gold reserves at the European Central Bank, the Treasury said.
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