Britain's National Audit Office Report On U.K. Gold Sales Raises More Questions Than Answers.

Business Editors

NEW YORK--(BUSINESS WIRE)--Jan 11, 2001

A report issued by Britain's National Audit Office on the sale of a substantial part of the U.K.'s gold reserves and which is designed to see whether the British taxpayer has received value for money from these sales has raised more questions than answers, said the World Gold Council which represents many of the world's gold producing companies.

However, the WGC welcomes the NAO's criticism of the British Treasury implicit in the reports recommendation that "the Treasury could give further thought, in consultation with the gold market, to using the London Gold Fix as an alternative or additional means of selling gold."

"We knew the NAO report would not question the wisdom of selling off 415 tonnes of the country's 715 tonnes of gold; that was excluded from NAO's brief right from the start," said Miss Haruko Fukuda, Chief Executive Officer of the WGC. "But leaving aside government's failures to provide economically compelling reasons for this sale, and ignoring the fact that (according to independent opinion polls) the majority of the British public do no wish the country's gold reserves to be depleted, we find it odd that the final report should contain some important inconsistencies," said Miss Fukuda, who went on to detail the following as being the most significant:

- Early on, the report examines different methods of sale in terms of
transparency, value for money and fairness. It judges the auction method as the
most suitable with the London -twice daily gold fix the second best. Yet later
the report states that "the majority" of participants in the London gold market
(the world's biggest) think the fix to be fair and that selling smaller amounts
of gold more regularly would be "less disruptive" to the market. The WGC fully
supports this argument and has made the same point to the U.K. Treasury on
numerous occasions.

- Surprisingly, the NAO uses the p.m. fix, rather than the a.m. fix, as the
comparison with the achieved price in the nine auctions staged so far. The p.m.
fix takes place after the auction and is, therefore, influenced by its result.
A better comparison would be with the a.m. fix. In two cases - July and
September 2000 - the difference between the auction price and the a.m. fix was
significant. In July 2000 the auction achieved $3.10 an ounce less than the
a.m. fix, while in September the auction under-achieved the fix by $1.40 an
ounce, an implied loss to the U.K. of $2.5m and $1.1m respectively.

- The report implies that the auction method of sale is somehow more
transparent than the twice-daily fix method, which really isn't the case. The
Treasury does not reveal the names of bidders at the auction, whether
successful or otherwise. The only transparent aspect to the government auctions
is that it is announced in advance that 25 tonnes is on the block. The London
fix is just as transparent, as its volumes are included in figures published by
the London Bullion Market Association in its clearing figures.

- It is somewhat odd of the NAO to compare the auction prices achieved with the
London fix price from Monday, May 10, 1999. This conveniently neglects that
fact that the gold price collapsed by $7.50 an ounce immediately after the
announcement on Friday, May 7, 1999.

Miss Fukuda went on to say that the report ignores the progressive market decline in gold trading activity, market participation and liquidity since the Washington Agreement and said that this decline is making it increasingly difficult for the market to absorb large quantities of gold - such as 25 tonnes - in one bite. This is especially true as small, regular sales from Switzerland are now blunting the market's appetite.

She said that the Council had also noted that the Swiss National Bank, itself in the process of selling 1,300 tonnes, specifically rejected the auction method after examining the initial results of the U.K. auctions. The NAO report

indicates that the Swiss sale, through the Bank for International Settlement s in Basle, is "proceeding smoothly in a way likely to minimize the impact on the gold market."

Editors Note:

The role of Britain's National Audit Office, which is totally independent of the government, is to certify the accounts of all government departments and a wide range of government bodies. It possesses statutory authority to report to the British Parliament on the economy and the efficiency and effectiveness on which the departments and other bodies have used their resources.