- NAO Report on Gold Sales
-
- Embargoed
12:00am (midnight) Thursday 11 January 2001
-
- LONDON : Friday 12 January 2001 - The National Audit Office report
on the sale of part of the UK's gold reserves - designed to see whether
the British taxpayer has received value for money from these sales -
has raised more questions than answers, said the World Gold Council,
which represents many of the world's gold producing companies. However,
the WGC welcomes the NAO's implied criticism of the Treasury, in its
recommendation that "the Treasury could give further thought, in
consultation with the gold market, to using the London Gold Fix as an
alternative or additional means of selling gold."
"We knew the NAO report would not question the wisdom of selling off
415 tonnes of the country's 715 tonnes of gold; that was excluded from
NAO's brief right from the start. But, leaving aside government's failures
to provide economically compelling reasons for this sale, and ignoring
the fact that (according to independent opinion polls conducted by MORI)
the majority of the British public do no wish the country's gold reserves
to be depleted, we find it odd that the final report should contain some
important inconsistencies, " said Miss Haruko Fukuda, chief executive
of the WGC.
The following are the most significant:
- Page 6 of the report examines different methods of sale in terms
of transparency, value for money and fairness. It judges the auction
method as the most suitable, with the London twice-daily gold fix second
best. Yet just three pages later the report states that "the majority"
of participants in the London gold market (the world's biggest) think
the fix to be fair and that selling smaller amounts of gold more regularly
would be "less disruptive" to the market. The WGC fully supports this
argument, and has made the same point to the UK Treasury on numerous
occasions.
- It is surprising that the NAO uses the pm fix, rather than the am
fix, as the comparison with the achieved price in the nine auctions
staged so far. The pm fix takes place after the auction and is therefore
influenced by its result. A better comparison would be with the am fix.
In two cases - July and September 2000 - the difference between the
auction price and the am fix was significant. In July 200 the auction
achieved $3.10 an ounce less than the am fix, while in September the
auction under-achieved the fix by $1.40 an ounce, an implied loss to
the UK of $2.5m and $1.1m respectively.
- The report implies that the auction method of sale is somehow more
transparent than the twice-daily fix method, yet it really isn't. The
Treasury does not reveal the names of bidders at the auction, either
successful or otherwise. The only transparent aspect to the government
auctions is that it is announced in advance that 25 tonnes is on the
block. The London fix is just as transparent, as its volumes are included
in figures published by the London Bullion Market Association in its
clearing figures.
- It is somewhat odd of the NAO to compare the auction prices achieved
with the London fix price from Monday, 10th May 1999. This conveniently
neglects the fact that the gold price collapsed by $7.50 an ounce immediately
after the announcement on Friday, 7th May 1999.
The report ignores the progressive, marked decline in gold trading activity,
market participation and liquidity since the Washington Agreement. This
decline is making it increasingly difficulty for the market to absorb
large quantities of gold - such as 25 tonnes - in one bite. This is especially
true as small, regular sales from Switzerland are now blunting the market's
appetite.
We also note that the Swiss National Bank, itself in the process of selling
1,300 tonnes, specifically rejected the auction method after examining
the initial results of the UK auctions. The report notes that the Swiss
sale, through the Bank for International Settlements in Basle, is "proceeding
smoothly in a way likely to minimise the impact on the gold market."
Contacts
Gary Mead, Head of Research, World Gold Council Tel: 0207 7662719 Home:
01892 549525
Keith Irons, Bankside Consultants Ltd Tel: 0207 2207477 Mobile: 07885356639
- Ends -
|
