Back in 1999, then-chancellor Gordon Brown announced a sell off of approximately half the UK's gold reserves. Naturally, this depressed the international gold prices, ensuring the Treasury realised far less for the precious metal than would have been achieved if the sales had proceeded out of the glare of publicity.

This, and more, is already reported on this site; but recently the gold sales have been re-appearing in the mainstream media. The reason for this is unclear, although it is likely because the price of gold is rising rapidly, once again sharply highlighting the economic incompetence of Gordon Brown.

Continuing the policy of the previous Government, this Government have accepted the principle of gold sales and have therefore continued to support the sale of International Monetary Fund gold to fund debt relief for the poorest countries.

In order to achieve a balanced portfolio of our national reserves, we will sell 125 tonnes of gold this year by the preannouncement and phasing of sales. There will be no sales of gold in August.

In answer to the first part of the question asked by the hon. Member for West Chelmsford (Mr. Burns), most of the gold held in our reserves was acquired before 1950 at a purchase price of $35 an ounce or less. Therefore, in answer to the hon. Gentleman's detailed question, the 25 tonnes of gold sold on 6 July would have been purchased for a notional $30 million or less. The gold was sold for $209 million, which makes a cash profit of more than $170 million.

In 1998 - just one year before the big sales were announced - Brown purchased 142 tonnes of gold, which makes his first paragraph an outright lie. Between 1979 and 1997, 137 tonnes of gold were sold, overall, most of that in 1979 (whether before or after the general election is not specified). Between 1980 and 1996, 5 tonnes of gold were purchased overall - which tends to suggest that the Tory Government's policy was not one of generally selling gold.

Cash profit, real-terms loss
In the third paragraph, Brown states that the gold sales made a cash profit of $170m - something no politician would ordinarily state. Normally, Governments are keen to use "real terms", i.e. inflation adjusted - and, quite probably in this case, exchange rate adjusted. As Brown failed to do this, LabourFailures have run the calculations for him.

The results, as we might expect, are not good. It is true that prior to 1950, gold cost somewhat less than $35/oz; however, when one adjusts for inflation and exchange rate, the 1950 price is revealed as £301.19/oz. The oldest readily available annual gold reserve data goes back to 1948; when gold was worth £228.47/oz in today's money. At the time Brown gave the answer above, in June 1999, the average adjusted gold price was just £212.20 - so Brown actually lost some £13m in real terms.

He went on:

The mistake was made by the previous Government. When the price of gold was valued at anything between $300 and $800 per ounce, they took no action while other countries around the world were rebalancing their assets portfolios. Although the hon. Gentleman complains about the British sale, over the past few years, Australia, Austria, Canada, the Netherlands, Belgium and Switzerland have been selling their gold portfolios. Canada has sold 500 tonnes, the Netherlands has sold 700, Belgium has sold 707 and Switzerland plans to sell 1,300. We plan to sell 125 tonnes this year.

Australia 162t 67.6%
Austria 335t 54.3%
Canada 611t 88.8%
Netherlands 652t 23.1%
Belgium 1029t 72.2%
Switzerland 0t 0.0%

Other countries were less eager to sell over the same period: Japan sold nothing, the US sold only 1.1% of its reserve. Denmark and Finland both increased their gold holdings (Finland by a full 100%). Most tellingly, France, Germany, Italy, Spain - and the UK - all increased their holdings by at least 25%.

Moving onto the gold sales themselves, between 1999 and 2000, Brown sold some 401.3t, at an average price of £224.14/oz. This brought around £2,864.95m (in real terms) into the treasury. In 2007, the average price of gold stood at £347.7, so the same gold was worth £4,486.05m (in January 2007) - an actual real-terms loss to the UK of £1.6bn. By April 2008, the same gold would be worth £6,096.23m, a loss of some £3.2bn.

Brown sold the UK's gold reserve at the lowest prices seen since 1972. Since 2002, the year of the last sale, gold prices have risen every single year.

And the cupboard was bare

The real tragedy is this: Gold prices tend to rise when the world economy falters, and fall when the world economy is strong. Brown squandered the UK's gold when the world economy was growing most strongly (guaranteeing a low price). Now that the economy is faltering (to put it mildly), and gold prices are strong, he's got no spare gold to sell.

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