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Politics : Dutch Central Bank Sale Announcement Imminent? -- Ignore unavailable to you. Want to Upgrade?

To: Stephen O who wrote (5970)	5/10/1999 10:52:00 AM
From: Enigma	Respond to of 81130

Steven - I think the online versions are truncated and the full version would give more financial coverage - but not as much as in the US. Have you got the FT site - maybe there's more there? d

To: Stephen O who wrote (5970)	5/10/1999 11:10:00 AM
From: Enigma	Respond to of 81130

FT Article - haven't read the related articles at bottom: Currencies May 10 1999 Status of gold under spotlight US climate is swinging toward sell-offs, says Richard Adams The tarnished status of gold as an official reserve will come under the spotlight this week as governments consider policy moves following the UK decision to reduce its 715-tonne stock to around 300 tonnes over the next few years. While the UK is not the first country to sell a sizeable chunk of its gold - Canada, Belgium, the Netherlands, Argentina and Australia have all recently held sales - the UK's move underlines the change in the attitude of policy makers to central bank reserves in general, and to gold in particular. The UK's move also follows a decision by Switzerland to end its currency's link to gold, and sell off part of its large gold reserves. Although the US has said it has no plans to sell any of its $11bn gold reserves, the intellectual climate in the US has swung towards sales, with the publication of academic research arguing for shifting the gold from public to private ownership. "While some may see the Bank of England's move as a pre-emptive move in the case of euro membership in the medium-term, it also underscores the feeling that central banks no longer think that gold is a reserve worth holding," said London commodity brokers GNI. The British sell-off, announced on Friday by Gordon Brown, the UK finance minister, will start this year, with 125 tonnes to be auctioned off by the Bank of England, the UK central bank, by March 2000. Yesterday Francis Maude, chief finance spokesman for the opposition Conservative party, demanded to know why more than half Britain's gold reserves were being sold. In a letter, he wrote: "Gordon Brown must give us a full explanation of why he has decided to abandon centuries of common sense and liquidate over 400 tonnes of our gold to buy billions of euros." The decision, however, signals a further decline in the status of gold as an official reserve that has been under way since the collapse of the post-war Bretton Woods Agreement consensus, which pegged the value of the US dollar directly to gold. The dollar's peg to gold was formally broken in 1971, but central bank holdings of gold reserves remain significant. According to the International Monetary Fund, gold held by central banks and international institutions (including the IMF itself), accounts for about a quarter of the gold in existence. The problem with gold as an asset is that in recent years its returns have been very poor. Since the late 1980s, the price has slowly declined from about $500 an ounce to below $300, where it sits now. Recent financial market turmoil in Asia, Russia and Latin America failed to lift the price, and so damaged gold's status as a "safe haven". Steven Bell, chief UK economist at Deutsche Bank in London, said that people often misunderstood the value of gold: that it was best as an asset in times of negative real interest rates, typically caused by high inflation. "That's why it was so popular in the 1970s," Mr Bell said. Given the low inflation and interest rates of recent years, gold's usefulness is likely to be weaker. As a result, central banks and government now think it more useful to take more dynamic investment positions, rather than simply buying a symbol of monetary stability that sits in their vaults. But central banks can make a modest income on the precious metal by lending it for fixed periods on the spot market. Lending can easily provide a return of around 2 per cent of the asset's value, according to the World Gold Council - more than recent yields on some Japanese government bonds, the council points out. The UK sales will see gold's share in the government's net reserves fall from being about half of £15bn ($24bn), to about one-fifth. The Treasury said the proceeds from the sales would be reinvested in foreign currency assets - mainly overseas government bonds. The other major reserve assets are held as Special Drawing Rights, the IMF quasi-currency. The reduction in gold holdings means the government can earn a greater rate of return from its reserves, through trading on international financial markets. So why not sell all the gold? First, the entry requirements to the European single currency include holding 15 per cent of assets in gold. Secondly, holding some gold as part of a diversified portfolio still makes sense. "Generally speaking, exactly how much gold to keep is a difficult question. But the answer is certainly going to be a lot less than we've got now," Mr Bell said. RELATED ARTICLES GOLD: Losing more of its gleam Selling the family gold