Brown to sell half UK gold reserve By George Trefgarne and Robert Shrimsley.

City: Brown's gold sale riles producers

GORDON BROWN was accused last night of trying to take Britain into the European single currency by stealth after surprising the City with an announcement that he was selling more than half of the country's gold reserves, leaving Britain the lowest bullion holdings of any major country.

The £4 billion of gold reserves - 415 tonnes - will be converted into euros, dollars and yen over the next few years. The sale will see the proportion of reserves held in gold falling from 17 per cent to 7 per cent. The Chancellor's announcement triggered a fall in the price of gold and provoked Tories and Euro-sceptic businessmen to claim the decision was politically motivated to prepare Britain's entry into the euro.

Their suspicions were fuelled by the timing of the announcement on a Friday afternoon when most MPs were away from Westminster and news coverage was dominated by the outcome of the elections for the Scottish Parliament, Welsh Assembly and English local councils.

The Treasury issued a bland, three-paragraph statement, saying the sale was intended to achieve "better balance" in Britain's reserve portfolio by increasing the percentage held in currency rather than gold but gave no suggestion that the move was linked to preparations for the single currency. Sources in the gold market claimed that Mr Brown had acted against the advice of Eddie George, the governor of the Bank of England, but this was denied.

The City greeted the news with dismay. Haruko Fukuda, chief executive of the World Gold Council, said: "This is a political decision, in preparation for joining the euro. This move appears to be pre-empting the promised referendum. Gold has special characteristics. It has been held as a reserve for thousands of years. Its value does not rely on anybody else's promise to pay, unlike cash, and it builds public confidence."

Francis Maude, the shadow chancellor, said: "Gordon Brown is trying to drag Britain into the single currency by stealth by making it appear inevitable. This could be another step along that road. It is time Gordon Brown started running the British economy in the interests of Britain and not in the interests of Europe."

After the sale, Britain will hold just 300 tonnes of bullion - a minimal amount when compared with other major economies. Around 40 per cent of the gold will be converted into euros; the same amount into dollars and the remaining 20 per cent into yen.

The sale of the reserves was seen at Westminster as a further attempt by the Treasury to bring Britain's economy into line with those states already signed up to the single currency. The Chancellor has made no secret of his desire to get Britain into a position where it can join the single currency early in the next Parliament - probably by 2002 - with the minimum of financial upheaval.

The European Central Bank, which adminsters the euro, has been encouraging those countries in the single currency to sell some of their huge gold reserves. It believes gold is a bad investment. The price peaked at $835 an ounce in 1980, but it has been struggling along at around $300 for the last 10 years. Yesterday, the price dropped sharply from $289.25 an ounce to $282.40 (£178.70).

However, a spokesman for the Treasury said: "This has nothing whatever to do with joining the euro. It is about efficient asset allocation within the foreign exchange reserves." The sale, to start next year, will bring to an end the Bank of England's 300-year-old practice of holding gold as a significant part of Britain's foreign exchange reserves.

A spokesman for the anti-euro group Business for Sterling said: "Since we know it is a political decision and we know that the European Central Bank has said that countries that want to join the euro have to sell off their gold reserves, it looks like another part of the Government's stealth policy."

27 April 1999: [City] UK puts heat on IMF to sell $3bn of gold reserves
23 January 1998: [International] Three central banks hoard gold in case of euro disaster
10 January 1998: [City] Gold falls to lowest price since 1979
11 August 1997: [International] China will not sell its gold reserves, says official

[link to www.telegraph.co.uk]