BUSINESS

All that glitters just might be steel

PATRICIA TREBLE March 31 2008
BUSINESS

All that glitters just might be steel

PATRICIA TREBLE March 31 2008

All that glitters just might be steel

BUSINESS

PATRICIA TREBLE

With gold surging above US$1,000 an ounce, debt-laden consumers are rummaging through old jewellery to cash in. They aren’t alone. Governments are calculating the value of all that bullion they’ve safely tucked away, and also whether they should sell. So imagine the shock when South Africa called the Ethiopian central bank recently to report that the 300 kg of gold it had just bought from Ethiopia was actually gold-plated steel. Nineteen people were arrested in the scandal, and more counterfeit bars have turned up in the vault.

Others, like Germany’s Bundesbank, have decided to hold onto their massive gold reserves. Last week it indicated it wouldn’t sell any of its US$100-billion-plus holdings, reportedly because it didn’t want to give the government a one-time budget windfall. The bank could have sold 120 tonnes this year under an international agreement drawn up in 1999That year, after a series of uncoordinated government gold sales destabilized the markets and drove the price below US$300 an ounce, European banks, which then accounted for nearly half of the world’s reserves, signed a deal that limited annual bullion sales. But those annual allowances, however limiting, have put British Prime Minister Gordon Brown in the hot seat. Between 1999 and 2002, as chancellor of the exchequer, he oversaw the massive US$3.5billion sale of half of his country’s reserves at an average US$275 an ounce. Tory critic Philip Hammond has called the decision to sell at the bottom of the market a “spectacular display of economic incompetence”—today the gold would be worth US$14 billion.

Alas, there won’t be a Canadian government gold bonanza: we’ve been gradually selling off our bricks since the 1980s and have just US$100 million left in the vault. M