Brown's sale of the century cost Britain $1bn in lost reserves

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GORDON Brown’s decision to sell off more than half of Britain’s gold reserves in the midst of one of the worst slumps in gold prices in living memory has cost the country more than $1 billion in lost revenues.

The loss - equivalent to 739.9 million at yesterday’s prices and exchange rate - came after gold prices soared by more than 15 percent in the past 60 days. The 739.9 million lost by the Chancellor in a series of transactions between 1999 and 2001 could have paid for two Scottish parliaments, 200 primary schools, 60 secondary schools or six state of the art hospitals. It could also have paid for 40,000 nurses, 45,800 police officers, or 9,411 average Scottish homes.

Instead, the money has disappeared into the pockets of gold traders who took advantage of prices that were dented by the sudden influx of hundreds of tonnes of UK government gold.

The Chancellor’s decision to dump 395 tonnes of gold on to an already depressed market in 1999 hit prices and led to one sale in which 804,000 ounces of gold were sold off for just $2 more than the 22-year record low of $254 in spring 2001.

But yesterday, with stock markets in turmoil and worries about an impending war in Iraq persuading buyers to take refuge in precious metals, the price of gold soared to $370.80 per ounce, its highest price since December 1996 and $95.82 higher than the average price achieved by the government’s sell-off.

The World Gold Council estimates that Mr Brown raised $3.495 billion - 2.14 billion - from the series of sales that took place between 1999 and 2001. At today’s prices and exchange rate, the gold would have been valued at $4.7 billion - 2.87 billion - which is equivalent to a loss of 739.9 million. The price of gold has risen by more than 15 per cent in the past 60 days and is set to rise further amid growing nervousness over a US-led war on Iraq.

Analysts were surprised by Mr Brown’s decision to sell off more than half of the country’s gold reserves at a time when the market was already struggling. One analyst said: "Frankly, I have never understood what he thought he was doing. When he announced the sale gold was trading at about $280 an ounce but at the first auction he made just $261.20 an ounce and the next one in September 1999 was the worst, just $255.75."

Although the market stabilised and gradually rose, the highest price achieved at any of the auctions was $293.50.

Michael Howard, the shadow chancellor, said: "The British taxpayer is hundreds of millions of pounds out of pocket thanks to Gordon’s golden fleece. So much for Prudence."

The amount lost in the sell-off could be higher because further losses were incurred converting the proceeds into euros. Those losses have been calculated at up to 50 million.

The Chancellor’s decision to sell off 395 of the country’s 714 tonnes of gold was driven by a desire to invest 40 per cent of the proceeds in euros to help stabilise that currency, which was struggling against the pound and the dollar. Critics also suspect the move was part of a plan to get rid of the pound because European Central Bank rules demand nations sell the bulk of their gold reserves before they can join the euro.

But a Treasury spokesman said: "The sale of the gold which the UK completed over a period of years was part of a long-term investment decision. The intention was to restructure the portfolio to reduce risk and as such the success or failure of that decision has to be judged over the long term."