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Central banks don't mind any amount of loss in gold

Section: Daily Dispatches

7:46p ET Tuesday, January 6, 2009

Dear Friend of GATA and Gold:

It's fun to tweak the British government for the portfolio loss it incurred by selling its gold reserves at the bottom of the market some years ago, as the news story and commentary appended here do. It's more fun because the British government cannot give the candid answer that would provide the supposed justification.

But nobody on gold's side should kid himself.

Whatever the British government lost by selling its gold was recovered many, many times over in the maintenance of the value of government currencies and bonds, which would have devalued drastically against gold and other real goods had a free market in gold been allowed to break out.

Further, of course, without the British gold sales some financial houses that had shorted gold with the encouragement of the Bank of England, the U.S. Treasury Department and Federal Reserve, and other Western central banks might have been unable to cover their positions and might have been bankrupted and dragged their counterparties down, potentially collapsing the Western financial system.

To central banks, the loss of value of gold reserves, the surreptitious rigging of markets, the cheating of all sorts of investors, workers, and countries, and the destruction of democracy seem like a tiny price to pay for the maintenance of the value of their currencies and bonds.

Compared to those currencies and bonds gold looks very small. In fact it is more powerful than all of them put together. It is the liberator of the producing class, which is why the financial class struggles so to suppress it. It could destroy them in an instant.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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Sold UK Gold Would Be Worth $7 Billion More at Recent Prices

By Nicholas Larkin
Bloomberg News
Tuesday, January 6, 2009

LONDON -- Gold sold by the U.K. in the four years through 2002 would be worth an extra $7 billion at recent prices, the government said.

The U.K. sold 395 tons of the metal in the period for about $3.5 billion, Ian Pearson, economic secretary to the Treasury, said in a Dec. 18 written response to government questions published on a parliamentary Web site.

The sales "reflected a prudent decision to reduce over- exposure to a single asset in the net reserves portfolio," he said. Based on the morning "fixing" in London on Dec. 15, the sold reserves would be worth about $10.5 billion, he said.

Gold was valued at $844 an ounce in the morning "fixing" in London today. At that price, 395 tons would be worth $10.7 billion.

The government response was earlier reported by political commentator Iain Dale on his Web site.

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Government Admits It Blew $7 Billion on Gold Sale

By Iain Dale
Iain Dale's Diary
Tuesday, January 6, 2009

The Government admitted in a parliamentary answer just before Christmas that had it not sold much of Britain's gold reserves during its first five years in office, the public finances would be $7 billion better off. That's around 2 percent off income tax.

Even more astonishing is the news that the sale of gold reserves at the bottom of the market was justified as "a prudent decision to reduce over-exposure to a single asset in the net reserves portfolio."

I'd love to know what was an imprudent decision. Possibly one where you go ahead with a sale of reserves ignoring warnings of the consequences.

Robert Key: To ask the Chancellor of the Exchequer how many tonnes of gold have been sold from UK reserves in each year since May 1997; what revenue was received from sales in each year; and if he will estimate the revenue which each sale would have generated at current gold prices.

Ian Pearson: 395 tonnes of gold have been sold since 1997: 75 tonnes in 1999; 150 tonnes in 2000; 130 tonnes in 2001; and 40 tonnes in 2002. The date of, the amount of gold sold and the allotment price at each of the 17 gold auctions is set out in the following table. (See Hansard 18 Dec 2008: Column 932W). The total proceeds from the sales were around US$3.5 billion. At the morning fix on 15 December 2008 the total value of this gold was US$10.5 billion. The gold sales between July 1999 and March 2002 reflected a prudent decision to reduce overexposure to a single asset in the net reserves portfolio.

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Sunday-Monday, January 25-26, 2008

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