Say, Let's Sell Some Gold
David Fairlamb, Carol Matlack and Maureen Kline - Europe's governments are eyeing their stocks as a quick source of revenue
Deep under the Bank of France's neoclassical headquarters in the heart of Paris is a huge vault known as "The Subterranean." Covering an area of one hectare, it contains more than 3,000 metric tons of gold, worth a staggering $36 billion at current market prices. That's roughly equivalent to 2% of France's gross domestic product, or more than half of this year's budget deficit.
Yet the hoard, which is a little over half of the central bank's total reserves, which includes euros and dollars, doesn't earn a single euro in interest and costs a fortune to guard around the clock. No wonder France's cash-strapped government is eager to get its hands on it. "[Is] it natural and normal that these reserves generate no revenue?" asked new Finance Minister Nicolas Sarkozy in an address to the French Parliament on Apr. 14.
That's becoming a familiar refrain across the Continent as politicians eye central bank gold stocks totaling 12,800 tons and worth $153 billion -- well above the 8,135 tons the U.S. Federal Reserve has stashed away in Fort Knox, Ky. European governments are eagerly proposing schemes to use proceeds from the sale of gold to fund everything from basic science research to paying down their ballooning national debts. French Prime Minister Jean-Pierre Raffarin proposed a gold-selling program in February to finance scientific research, under the slogan "today's gold for tomorrow's gold." German Chancellor Gerhard Schröder followed suit by suggesting that the Bundesbank consider selling some of its 3,440 tons. And Italian Finance Minister Giulio Tremonti is urging the Bank of Italy to reduce its 2,451-ton cache.
The new fervor over the ancient metal comes at a time when European governments are straining to finance new spending amid declining tax revenue. Germany and France, in particular, are already violating a European Union commitment to keep budget deficits below 3%. Philip Klapwijk, executive chairman of GFMS Ltd., a London precious-metal consultant, says the clamor for gold sales is a no-brainer: "It's a free source of revenue, and they don't have to tax anyone to get it."
European central bankers, such as Bank of France chief Christian Noyer, have been quick to argue against major gold sell-offs. They contend that gold stocks could offset any potential shortage in the future and also serve as a reserve of last resort in case of a major crisis. Meanwhile, advocates of gold sales say governments should be allowed to tap these reserves to give their budgets a quick fix, especially at a time when gold prices are hovering around $400, the highest in nearly a decade. The temptation has proved too strong for a number of European central banks, which have already run down their gold stocks. The Bank of the Netherlands has sold 210 tons since September, 1999, netting about $2 billion, and plans to off-load an additional 59 tons this year. The Dutch still have a 777-ton hoard. In the same period, the Bank of England has divested 345 tons, raising around $3.3 billion -- more than half the total it had in 1999. Most spectacularly, the Swiss National Bank, once one of the world's most dedicated gold bugs, has almost completed a program, started in May, 2000, to ditch 1,300 tons of gold, leaving only 1,462 tons. All told, it expects to raise nearly $16 billion and hand it over to the government. "We no longer need so much gold for monetary policy purposes," says a bank official.
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