On May 7 Bank of England Governor, Eddie George, announced that the Bank of England would sell more than half of its
gold reserves. 415 metric tonnes of its total reserves of 715 metric tonnes.
The decision, to literally "sell the Crown jewels" and cut the bank's gold holdings by more than half, followed similar
decisions by the central banks of two other British Commonwealth countries - Canada and Australia.
The mere announcement on May 7, by a central bank with such huge and historical ties to gold, that it planned to auction
the first of six tranches pushed the gold price lower by $30 an ounce.
The auction, on July 6, where 25 tonnes was sold, drew a furious protest from the new President of South Africa, Thabo
Mbeki. He accused the rich nations such as Britain of following policies that will have "a potentially disasterous
effect on poorer economies."
The South African gold mining industry, like the Australian, New Zealand and Canadian gold industry, is threatened with
wholesale unemployment as numerous gold mines face bankruptcy or closure.
South African Finance Minister, Trevor Manuel, stated, "too many countries survive from export revenues, primarily from
commodities and this will impact very directly."
But the Bank of England did not sell its gold to the general public. Rather, it sold it to a very select 62-member group
in the London Bullion Market Association (LBMA).
What took place, in my view, was a scam where after announcing a sale of gold of May 7 and therefore driving the price
down, the Bank of England then sold the gold on July 6 at the artificially depressed price.
The price-dumping strategy forced gold sales on a massive scale which has enabled some financial elites to amass huge
private gold holdings which were previously in public ownership.
The Marketing Director of AngloGold of South Africa, Kelvin Williams, told the Times of London on June 8, " The Bank of
England chose the most disruptive method to go to market. To announce a transparent sale in advance is to allow
speculators to speculate against the metal before your sale."
Innternational gold and silver dealers are also astonished. This was, afterall, the Bank of England who had always been
supportive of the price of gold, and England is the place where the price of gold is fixed.
How much did this cost the people of the United Kingdom who will ultimately carry the loss?
The sale of 25 metric tonnes left the Bank of England with 680 metric tonnes. The $27.05 drop in price per ounce cost a
devaluation of the Bank's remaining gold holdings of $613 million.
But by July 20, the price of gold was down to $252.80 per ounce - a devaluation of $797 million. Through the sale of its
25 metric tonnes the Bank of England only received $210 million.
The Bank, therefore, had devalued its remaining gold holdings by nearly four times the amount it received for its first
installment sale.
This cheapening of gold reserves value is having a world-wide impact.
In March 1999, the world's central banks and official institutions held a combined 33,604 metric tonnes of gold
reserves. Between May 7, when Governor Eddie George announced the Bank of England's gold sale, and July 6, when the Bank
sold its first installment, the central banks and official institutions of the world lost $30. 3 billion in the value of
their gold reserves. By July 20, this loss had reached $39.3 billion.
The Bank of England's gold sell-off strategy has also bankrupted weaker gold mining companies in the poorer countries
and they are being acquired at fire-sale prices thus tightening the grip on future gold production.
The gold price is now below the average cost of production in the major gold-producing nations.
Wondering why it all happened as it did, many financial commenatators think that accumulating a golden parachute for a
post-collapse world is not such a bad idea. A world in which financial paper will have the same value as wall paper.
Viewed in that light, the actions of the Bank of England could be seen as the typical skim and park operation. Legendary
bank robber, Willie Sutton, would be crying foul, protesting that at least in his day bank robbers had to do some work
before walking away with such a large haul.