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LONDON: An unwise decision by Britain ten years ago has made Europe’s central banks $40 billion poorer than they might have been.

An analysis in London’s Financial Times said that London’s announcement on May 7 1999 that it would sell a large share of the Bank’s gold reserves in favour of assets offering a return, such as government bonds, was the high water mark of the so-called anti-gold sentiment among European central banks.

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The FT analysis said many of these banks, such as those in France, Spain, the Netherlands and Portugal, decided later in 1999 to follow Britain and sell off their reserves. At that time gold was worth around $280 an ounce, less than a third of its current level of more than $900.

European banks sold about 3,800 tonnes of gold, reaping about $56 billion.

Taking into account the likely returns from the investments in bonds, the banks have gained another $12 billion. But because of today’s gold prices are far higher, they are about $40 billion poorer than if they had kept their reserves, said the FT report.

The biggest loser is the Swiss National Bank which sold 1,550 tonnes over the decade and at today’s gold prices is $19 billion poorer, followed by the Bank of England, which is $5 billion poorer.

The UK Treasury on Wednesday defended its decision to sell gold as a way to diversify reserves and cut risk. “As a result of the programme, a one-off reduction in risk of approximately 30 per cent was achieved,” it said. The Swiss National Bank declined to comment other than to say that it did not plan to sell more gold.

After 10 years of steady sales, Europe’s gold sales are set to slow to their lowest levels since 1999, while central banks outside Europe have already become net buyers of gold.

The US, the world’s biggest holder of gold, decided not to follow Europe’s move. Germany and Italy are the only two big European central banks which did not follow the UK, mostly because of domestic disputes about what to do with the proceeds.
(Source: Financial Times London)