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Friday, May 7, 1999 Published at 18:58 GMT 19:58 UK

Business: The Economy

Treasury offloads gold reserves

Gold: There is too much of the shiny metal about

Britain is to sell off a big chunk of its gold reserves because what was once one of the world's most precious commodities is losing its value.

The UK is selling 415 tonnes of its 715 tonnes of gold, around 10% of its total Treasury holdings, as it 'restructures' its reserves.

This is more than half the treasury's hoard of gold, secured in vaults under the Bank of England.

A UK Treasury spokesman said: "Our aim is to optimise and diversify our portfolio with a sensible risk return balance."

The UK will buy more foreign currencies with the proceeds.

The first tranche of 125 tons will be sold in the next year.

[ image:  ]
Gold plunged by more than five US dollars an ounce as the market reacted to the news.

It is now worth just over $280 a troy ounce. A troy ounce weighs 1.1 ounces.

Gold was once one of the most valuable assets in the world but as more and more of the shiny metal swills around its value drops.

Gold's falling standard

Critically, for banks it now gives relatively poor returns and several have been selling off their reserves, including the Australians, Belgians, Dutch and even the Swiss.

The International Monetary Fund is to consider selling off some of its gold to help fund debt relief for poorer countries.

The significance of Switzerland is that its 2,600 tonnes of gold are the third-biggest reserve of holdings in the world, after the US and the eurozone area.

[ image: How low will gold prices go?]
How low will gold prices go?
Over the last 20 years bonds and shares have given better returns and many banks and finance institutions are now replacing gold with better yielding investments.

The Swiss reckon the cost of lost interest in holding gold rather than US Treasury bonds is equivalent to around $400 a year per household.

Tarnished reputation

The value of gold has failed to keep pace with inflation, it has underperformed shares and bonds and has been expensive to store.

Banks, like everyone else, are under pressure to improve the returns on their reserves.

The European Central Bank has decided to hold only 15% of its reserves in gold, well below the 30% average of most of the countries in the eurozone.

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