(May 7,1999) On May 7th, the United Kingdom Treasury announced that it will sell 125 tonnes of gold from their reserve holdings in a series of five auctions starting this July 1999. The next few years will see sales of about 415 tonnes from the U.K.

"What the Bank of England thinks it has achieved, God knows," Kevin Williams, executive director of the world's largest gold producer, Anglogold, was quoted by Reuters News today. "They have now devalued the 700 tonnes of material they have got. It strikes me as an extremely inept way of managing your assets."

The unfortunate timing of the announcement just as the market was digesting the prospects of IMF and Swiss sales of gold reserves rattled London markets early on Friday, with spot markets flirting with the two-month low of $279.10 in the May contracts. Technically, $279 is seen as an important support level, and prices closed at $282.90 in New York trading after earlier weakness.

Reuters quoted Refco analyst James Steel as saying; "We've seen central bank selling of this amount before. It's a lot of gold but it's not cataclysmic."

Sales by central banks have been in the range of 300 to 400 tonnes annually over the past ten years or so. Also, according to the World Gold Council, "Annual demand for gold is running about 1,000 tonnes over mine production." This puts the sale of 125 tonnes over two years into perspective.

Politically, the move by the U.K. may be a precursor to joining the European Money Union and the European Central Bank. After joining, such moves would be restricted by regulations of the ECB, so this may be seen as getting the Treasury's house in order in advance of such a move.

Everyone involved in gold has been putting a spin on this announcement. The 'gold is dead' crowd see this as Britain's attempt to be first in line among central banks wishing to abandon gold ownership. On the other hand, the gold-conspiracist groups always see large economic entities, corporate and governmental, doing their best to keep gold prices down. We note that one chat-room wag announced today that "This is it - there's definitely a conspiracy against gold!"

Whatever your take on today's demolition of the warm-and-fuzzy gold market we have seen over the past few short weeks, we've got to admit that it keeps things interesting - stay tuned!