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Europe agrees pact to avoid Gordon Brown's gold sale error
Renewal of Central Bank Gold Agreement will ensure central banks don't repeat the former prime minister's mistake of selling Britain's gold reserve cheap
Gordon Brown sold 400 tonnes of the UK’s gold reserves at an average price of just below $300 an ounce between 1999 and 2002. Photo: Getty Images
By Andrew Critchlow
6:10PM BST 19 May 2014
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Gordon Brown's catastrophic decision to sell Britain's gold reserves won't be repeated by Europe's largest central banks after they renewed an agreement not to sell “significant” holdings of the precious metal for another five years.
The deal helped to push the price of bullion briefly back above $1,300 (£772) per ounce on Monday, reversing a recent spell of weakness since gold rallied at the beginning of the year.
The new agreement among Europe’s central banks, including Sweden and Switzerland, reinforces the role still played by gold to underpin reserves in some of the world’s most advanced economies.
“This is extremely positive news for the global gold market, especially against a backdrop of ongoing gold purchases by emerging market countries,” said Natalie Dempster, the World Gold Council’s managing director for central banks and public policy.
“It underlines the commitment to gold that European central banks continue to have with regard to their monetary reserves. Of equal importance is the message it sends to gold-producing countries, who can be reassured that their economic development will not be undermined by uncoordinated sales of gold.”
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In a joint statement, the signatories to the Central Bank Gold Agreement (CBGA) said they “will continue to co-ordinate their gold transactions so as to avoid market disturbances” and pledged that “they do not have any plans to sell significant amounts of gold”.
The CBGA was created in 1999, when market volatility forced many European vaults to sell gold, including the UK Treasury. Combined, the institutions signed up to the CBGA – including the European Central Bank and the Bundesbank – hold approximately 11,000 tonnes of gold, according to the World Gold Council.
During the past five years, major gold holders from European central banks have virtually stopped all sales – selling less than 25 tonnes of gold, primarily to mint coins, against an agreed limit of 2,000 tonnes.
However, the new agreement has removed the reference to a specific quota, which had previously allowed combined sales of just 400 tonnes.
This has now been replaced by signatories pledging not to dump gold on to the market, as was the case when Mr Brown, the former prime minister and chancellor, sold 400 tonnes of the UK’s reserves at an average price of just below $300 an ounce between 1999 and 2002. This deal, in which Britain disposed of more than half of its reserves, has been nicknamed “Brown’s Bottom” by some, since gold was at its lowest price in two decades at the time of the sale.
Gold prices at the moment are 32pc lower than the record achieved in 2011 when they touched $1,900 an ounce.
Emerging markets such as China and India continue to be the main drivers for the global gold trade, both generating demand of more than 2,000 tonnes last year.
Renewal of Central Bank Gold Agreement will ensure central banks don't repeat the former prime minister's mistake of selling Britain's gold reserve cheap
Gordon Brown sold 400 tonnes of the UK’s gold reserves at an average price of just below $300 an ounce between 1999 and 2002. Photo: Getty Images By Andrew Critchlow
6:10PM BST 19 May 2014
111 Comments Gordon Brown's catastrophic decision to sell Britain's gold reserves won't be repeated by Europe's largest central banks after they renewed an agreement not to sell “significant” holdings of the precious metal for another five years.
The deal helped to push the price of bullion briefly back above $1,300 (£772) per ounce on Monday, reversing a recent spell of weakness since gold rallied at the beginning of the year.
The new agreement among Europe’s central banks, including Sweden and Switzerland, reinforces the role still played by gold to underpin reserves in some of the world’s most advanced economies.
“This is extremely positive news for the global gold market, especially against a backdrop of ongoing gold purchases by emerging market countries,” said Natalie Dempster, the World Gold Council’s managing director for central banks and public policy.
“It underlines the commitment to gold that European central banks continue to have with regard to their monetary reserves. Of equal importance is the message it sends to gold-producing countries, who can be reassured that their economic development will not be undermined by uncoordinated sales of gold.”
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In a joint statement, the signatories to the Central Bank Gold Agreement (CBGA) said they “will continue to co-ordinate their gold transactions so as to avoid market disturbances” and pledged that “they do not have any plans to sell significant amounts of gold”.
The CBGA was created in 1999, when market volatility forced many European vaults to sell gold, including the UK Treasury. Combined, the institutions signed up to the CBGA – including the European Central Bank and the Bundesbank – hold approximately 11,000 tonnes of gold, according to the World Gold Council.
During the past five years, major gold holders from European central banks have virtually stopped all sales – selling less than 25 tonnes of gold, primarily to mint coins, against an agreed limit of 2,000 tonnes.
However, the new agreement has removed the reference to a specific quota, which had previously allowed combined sales of just 400 tonnes.
This has now been replaced by signatories pledging not to dump gold on to the market, as was the case when Mr Brown, the former prime minister and chancellor, sold 400 tonnes of the UK’s reserves at an average price of just below $300 an ounce between 1999 and 2002. This deal, in which Britain disposed of more than half of its reserves, has been nicknamed “Brown’s Bottom” by some, since gold was at its lowest price in two decades at the time of the sale.
Gold prices at the moment are 32pc lower than the record achieved in 2011 when they touched $1,900 an ounce.
Emerging markets such as China and India continue to be the main drivers for the global gold trade, both generating demand of more than 2,000 tonnes last year.
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