costello sells australia's gold

THE Reserve Bank sold most of the nation's gold reserves more than a decade ago because the board believed its price would remain flat

They believed also the commodity would not play a role in a future financial crisis.

The decision to sell 167 tonnes of the bank's reserves has cost the nation about $5 billion based on today's soaring price of almost $1400 an ounce.

A board paper recommending the decision to sell conceded that gold served as "insurance against a breakdown in the international financial system", but it then dismissed the need for holding this valuable asset. The paper has been obtained by The Australian under Freedom of Information laws.

The paper also said Australia need not worry about selling the assets because it had vast reserves of the commodity, yet the latest figures from Geoscience Australia show that known reserves will be exhausted with 30 years.

The RBA revealed in July 1997 that over a six-month period, it had sold 167 tonnes, reducing Australia's reserves to just 80 tonnes. At this time, the value of its gold assets fell from $3.6bn to about $1.1bn.

The RBA's sales pushed the world gold price down to an 11-year low, returning just $2.4bn for the gold that was sold via a single broker engaged without a tender.

The same amount of gold would be worth about $7.4bn today.

The decision to sell the reserves was approved by then RBA governor Ian Macfarlane and then treasurer Peter Costello.

http://www.theaustralian.com.au/news/nation/reserve-banks-gold-sale-cost-us-5bn/story-e6frg6nf-1225985231872