UK Gold Reserves (Hansard, 12 May 1999)

§ Lord McIntosh of Haringey
My Lords, the sale of gold announced last week is part of a prudent 1201 restructuring of the reserves to increase the share in foreign currencies and to reduce the share of gold. This will provide a better balance in the portfolio for the UK's net reserves. The increase in currencies will be a mix of dollars, euro and yen, which is how the net currency reserves are presently held.

§ Lord Skelmersdale
My Lords, If am grateful to the Minister for that Answer. Is he aware that I make no complaint about the restructuring of the reserves? However, given the immediate result of the gold price dropping by five-and-a-half dollars an ounce on Friday afternoon and by a further four-and-a-half dollars since, without a single grain being sold, can the Minister say why on earth this policy was announced in advance?

§ Lord McIntosh of Haringey
My Lords, rather than pleading our own cause, I should refer the noble Lord to the very authoritative leader in the Financial Times, which argued, first, that it made sense, as the noble Lord acknowledged, to restructure our net reserves; and, secondly, that the timing and the method chosen were correct. We are proposing five auctions during the course of this year of as small an amount as 25 tonnes. My understanding is that the gold price has stabilised during the course of today.

§ Lord Barnett
My Lords, although I agree with my noble friend on the Government's position in the matter, can he tell us what is the case for keeping the remainder of the reserves in gold?

§ Lord McIntosh of Haringey
My Lords, my noble friend may be recalling Keynes in the 1930s who described gold as a "barbarous relic". That may indeed be a proper position for the next millennium, but at present what we propose is a very modest change in the balance of our net reserves.

§ Lord Lawson of Blaby
My Lords, is the Minister aware that the reason he has given—if it is a reason at all—is totally unconvincing? Is he further aware that the only genuine reason, the only thing that makes sense, for the action that has been taken is that the Government are looking forward to the time when there will no longer be a pound sterling, only a euro? Therefore, in those circumstances, there will be no need to have reserves at all. I see the noble Lord, Lord Peston, who is sitting behind the Minister, nodding his head. However, on reflection, does the Minister not feel that it is perhaps a trifle rash, not to say contemptuous of the British people, to pre-judge the result of a forthcoming referendum on the euro in this way?

§ Lord McIntosh of Haringey
My Lords, I was grateful to have advance notice of the noble Lord's views in the press statements that he made earlier this week. I am aware that he is not convinced—but I do not believe that anyone else is not convinced—that this restructuring is entirely a technical matter made, by order, to the Bank of England, after having taken 1202 the advice of the Bank of England. The amount of money involved is not affected by and does not affect any preparations for joining the single currency; indeed, it is done entirely for its own purpose.

§ Lord Peston
My Lords, I was aware that I was nodding my head. I did so simply because I regard gold as an entirely sterile asset, except for a tiny amount used in jewellery. Its value depends entirely on human irrationality, which Keynes. in particular, fully appreciated. Would not the correct next step be to find any mug in the world who is willing to buy it at the world market price and then sell it, using the remainder to hold interest-earning assets or to reduce the national debt? Both would be excellent moves whether or not we enter EMU, although of course I would favour the latter. That is not the essence of the matter; the essence is the complete irrationality of the world which feels that gold is a worthwhile asset.

§ Lord McIntosh of Haringey
My Lords, as my noble friend said, one of the reasons, although not the only one, for the proposed sale of gold is the fact that currency reserves held in the form of government bonds do attract interest. The level of interest that they attract depends on interest rates in the United States, Japan and in euroland. However, for the sake of completeness, I have to say that we do receive some proceeds from gold by lending it in the London gold market.

Lord Mackay or Ardbrecknish
My Lords, has the Minister had an opportunity to read the speech of the Chancellor of the Exchequer to the General Assembly of the Church of Scotland, in which he advocated a determination to continue the policy of Mr. Kenneth Clarke to persuade the IMF to sell at least some of its gold reserves in order to help fund the debt of the third world? In the light of that perfectly reasonable policy, is it not a bit odd that the UK Government should decide to sell their gold thus depressing the gold market? Surely that means that the IMF will receive a lot less money for its gold when it comes to sell it and that the third world will also receive less in debt relief.

§ Lord McIntosh of Haringey
My Lords, the noble Lord should pay some attention to the different orders of magnitude involved. We are talking about selling 125 tonnes of gold during the course of this year from total net reserves of £9 million (15 billion dollars) in a situation where the production of gold is approximately 4,000 tonnes a year. The use of gold for fabrication, jewellery, and so on, is approximately 4,000 tonnes a year. The effect on any country's balance of payments on its reserves will be minimal. Moreover, the effect on debt relief, on which this country has an exceptionally good record, will not be significant.