Outlook: Selling gold

ARTHUR SCARGILL, The Daily Telegraph, Nelson Mandela and Francis Maude make unlikely allies, but then this is the new politics and when it comes to gold, they all take the same view. To quote Mr Scargill's NUM, there is "total solidarity with the South African mineworkers in their struggle against capitalism". Well perhaps not quite, but they do all think the Government's policy of flogging off the nation's gold reserves stinks.

The leader of South Africa's mining union, James Motlatsi, has been over here in Britain claiming the gold sales threaten 100,000 mining jobs back home, and although his views have received a warm welcome from the shadow chancellor and others, they have fallen on deaf ears at Nos 10 and 11 Downing Street, where he has yet to receive an audience.

From thousands of miles away, Mr Motlatsi has been watching with growing alarm at the effect of Britain's plan for a phased sale of 415 tonnes of gold reserves over three years. He certainly argues a powerful case. Gordon Brown, the Chancellor, was adamant the sales would not disrupt the gold market. They have, with the price down more than ten per cent since the sales were announced, and back in South Africa, jobs are already being lost.

Furthermore, some of the countries worst hit are those very nations the West wants to help through the Highly Indebted Poor Countries (HIPC) scheme. In a further irony, this scheme is being part funded through the planned sale by the International Monetary Fund of another 300 tonnes of gold. Mr Motlatsi cannot for the life of him see how these sales benefit anyone and is begging Gordon Brown, the Chancellor, to desist.

Should the Government listen, or stick to its guns? To answer this question, we must first examine the Government's reasons for selling. Gold has proved a poor investment since its price peaked in the 1970s and even on a longer term perspective, it has barely matched inflation. It is expensive to store, it has little if any place in the modern monetary system, and compared to others, though by no means all of them, Britain has a disproportionately large amount of its reserves invested in the stuff.

But as Mr Motlatsi says, none of these are good reasons for selling if the effect of the sales is to damage economies like South Africa without in any visible way benefiting the British one. To find the real reason for these sales, then, we have to probe a bit deeper. The truth is that these sales are being conducted by way of moral example. Mr Brown couldn't hope to persuade the IMF to sell gold to fund his third world debt relief plan unless Britain was prepared to do so too.

The real battle over gold will be fought not in Britain, but in Washington. The gold lobby is fairly confident it can persuade the US Congress to block the IMF gold sale. The IMF needs 85 per cent support and the US has 17.5 per cent of the votes. And if Mr Motlatsi and his allies succeed? Then the HIPC plan may fail. Will the 41 highly indebted countries really be better off with a strong gold price but no debt relief? Somehow this seems rather unlikely.