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Australian Central Bank Decision To Sell Gold Reserves Cost Country $5 Billion

Post by Sharat on January 11, 2011 · Under banking, News · 7 Comments 
Australian Central Bank Decision To Sell Gold Reserves Cost Country $5 Billion

Just over ten years ago, Australia’s central bank the RBA sold off most of the countries gold reserves under the belief that the price of gold would continue to remain flat, and that as an asset, it would no longer play any role in the future financial system, or any crises that may result.

Based on the current market price of $1,400 an ounce for gold, the decision to sell 167 tonnes of the precious metal by the central bank has cost Australia approximately $5 billion.

A paper written by the central bank which recommended selling off the gold reserves conceded that that asset whilst the assets served as “insurance against a breakdown in the international financial system”, it was not necessary to hold.

In recommending the decision the paper went on to add that Australia did not need to be overly concerned about selling off its existing gold stock because it has vast reserves of the precious metal, though according to Geoscience Australia, the country has reserves that will last no more than 30 years.

In 1997 the Reserve Bank of Australia sold 167 tonnes of gold over a six month period, reducing the nation’s gold reserves to just 80 tonnes. Over that period the value of its gold holdings declined to $1.1 billion from $3.6 billion.

The sale of gold by the Australian central bank had a significant impact on world gold prices, sending them tumbling 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 central bank’s justification for reducing its gold reserves so drastically was that gold represented a poor investment, and Australia had successfully integrated itself into global financial markets, and that it need not worry about access to those markets during a financial crisis.

Since the sale of the gold reserves the global financial systems has experienced severe stress on a number of different occasions, starting with the implosion of the technology bubble at the start of the millennium followed by the September 11th terrorist attacks, and more recently the global financial crisis in 2008.

The price of the precious metal over that time frame has risen spectacularly and the asset has begun to play an increasingly important role in the global financial system since the  financial crisis.

The central bank argued that continuing development of financial system meant that circumstances which would require Australia to call upon our gold holdings for economic reasons looked increasingly remote.

“Central banks traditionally hold gold because of its ability to be used in the event of a crisis in the international financial system; it is the only reserve asset that is not a claim on some other government, international institution or bank. However, over the past two or three decades, the world has experienced a number of economic ‘crises’, but gold played no part in coping with them,” the paper said.

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7 Responses to “Australian Central Bank Decision To Sell Gold Reserves Cost Country $5 Billion”

  1. John Troddyn on January 12th, 2011 12:55 am

    So whats new we’re governed by incompetent politicians and the system is run by incompetent bureaucrats,anybody with any talent is doing something else.Every decision should be subject to a referendum on the internet.

  2. Gold Trader on January 12th, 2011 12:41 pm

    This will please Gordon Brown. He won’t feel as foolish knowing he wasn’t the only one who sold gold at the bottom.

  3. JFGalt on January 13th, 2011 7:41 am

    Australian was saddled with the same globalist idiots as Britain when they dumped most of their gold at fire sale prices. The British fool (Gordon Brown) was rewarded by making him Prime Minister. What was the Australian fool's reward – it would be interesting to know. I would be surprised if the USA has anything left too – they will not allow an audit. If you don't think there was a concerted effort to remove the gold from weak hands to strong ones then you have a lot to learn about how we are finding out about how the world has really worked.

  4. B Mused on February 7th, 2011 7:01 pm

    Sadly the majority of our public officials (both elected and otherwise) are illsuited for their roles. Costello rubber stamped this decision and helped undersell the first tranche of TLS at an estimated $12 billion and yet is held up as our marquee treasurer.

  5. Phil Hingston on February 25th, 2011 3:37 pm

    When one says "The Austn. Central Bank sold…" I'd like to know exactly "WHO" in the central bank initiated this idiotic decision and exactly WHO finally signed off on it… AND are they still working there, looking after our employment, currency stability and economic well being???

  6. shuaib on April 13th, 2011 5:36 am

    sir i want to know gold future price

  7. what are karatbars on September 3rd, 2013 8:17 pm

    " Australia’s central bank the RBA sold off most of the countries gold reserves under the belief that the price of gold would continue to remain flat,"

    – now of course everything would be that perfect. It;s just really the best then.