Media Release Official Sales of Gold

Over the past six months, the Reserve Bank has sold 167 tonnes of gold, reducing its holdings from 247 tonnes to 80 tonnes. The sales were made gradually, taking care not to disrupt market conditions. The new level is consistent with Australia's longer-term requirements, and the Bank has no plans for further sales.

The sales were undertaken forward, with 125 tonnes being delivered in June, and the remainder to be delivered in August and September. The sales delivered in June will be reflected in next Monday's regular media release, Official Reserve Assets. The proceeds of the gold sales were immediately invested in foreign currency assets (government securities denominated in US dollars, Japanese yen and German marks). As a result, the gold sales have not resulted in a reduction in Official Reserve Assets (commonly known as international reserves). While the value of gold holdings fell by $1,830 million over the month of June, the value of foreign exchange rose by $2,368 million, which reflects the proceeds of the gold sales, together with other factors such as valuation changes.

Over the past five years, a number of central banks have sold gold from their reserves, the most prominent being the central banks of Austria, Belgium, Canada, the Netherlands, Portugal and South Africa. The Australian sales program followed a review by the Bank of the costs and benefits of holding a significant part of international reserves in the form of gold. Following the review, the Bank's Board concluded that, while there was a case to hold some gold as a contingency against unforeseen events, the previous holdings (which amounted to about 20 per cent of international reserves) were no longer justified. The principal reason for this conclusion was that a country in Australia's position, with large gold reserves in the ground and high annual production, derives negligible diversification benefits from holding a significant proportion of its international reserves in the form of gold.

Following standard accounting practice, the Bank has regularly revalued its gold to reflect market prices. This has resulted in large unrealised gains held in a revaluation reserve on its balance sheet (the gold had been purchased at the old ‘official’ price of US$35 per ounce). The sale realises this capital gain. The Treasurer has given his approval for the Bank to retain these funds for re-investment in other assets, in order to avoid any rundown in international reserves. The Government will, of course, receive an on-going benefit from the additional profit the Bank will generate from the investment of these funds.