asked Her Majesty's Government:

What have been the receipts from gold reserve sales since 1997; and what would be the current market value of the gold reserve sold.

My Lords, 395 tonnes of gold were sold from the reserves between July 1999 and March 2002. The total proceeds were around$3.5 billion, equivalent to around £2.3 billion, using exchange rates at the time of the sales. On 3 July, the current market value of the gold sold was around$7.9 billion, equivalent to around £4.3 billion. The programme was part of a restructuring of the foreign currency and gold reserves aimed at achieving a better balanced portfolio. As a result of the programme, a one-off reduction in risk of approximately 30 per cent was achieved as measured by value at risk.

My Lords, I thank the Minister for that response. What securities were acquired with the proceeds of the gold sales, and what is their current market value in the same denominations as he gave in the original Answer?

My Lords, the proceeds from the sales were invested in interest-bearing foreign currency assets in proportion to the then held reserves: 40 per cent dollars, 40 per cent euros and20 per cent yen. The current aggregate position of the reserves is included in the exchange equalisation accounts, which are published annually, and there is a monetary report on the reserves. It is not possible at this stage to unpick the particular transactions from that time, but the accounts show the aggregate position and do so on an annual basis.

My Lords, does my noble friend accept that the case for a more balanced foreign reserve portfolio is well made, regardless of the present price of gold? The plain fact is that an unremunerated, risky and volatile asset like gold is better reduced in the foreign reserve portfolio. Indeed, there is a case for reducing it even further. Does my noble friend accept that we made an agreement in the European Union—with 14 member states as well as the European Central Bank—that there would be a sale of no more than 2,500 tonnes over five years? What proportion of that total would be available for us to sell over the next five years?

My Lords, I agree with the first part of what my noble friend said. This was about change and getting a more balanced portfolio. We achieved that 30 per cent reduction in risk as a result. It is wrong to evaluate the success of the programme in terms of the short-term movements in gold prices. The Government have no plans for further disposals of gold. We think that the arrangement in the portfolio is now about right.

My Lords, at a time of floating exchange rates, what is the purpose of the gold reserve at all?

My Lords, my noble friend makes an interesting observation. The importance of gold generally in the reserves of this and other countries has lessened. So far as the UK is concerned, because we have a strong monetary and fiscal framework, we allow the market to determine what exchange rates are going to arise.

My Lords, the Minister will be aware that at the time the Treasury said that the decision on gold sales did not involve taking a view on gold prices. It was vastly mistaken to sell off gold when the price was at a 20-year low. Does he accept that, had the Treasury held on to it until the market rose, it might now have been able to sell it to realise an additional£2 billion?

My Lords, I believe that is the wrong analysis to make, as I have said earlier. Gold is extremely volatile in its price. It was about $100 above its current price a month ago, and$45 below its current price when the first draft Answer was produced for me to give to the noble Lord. That underlines the volatility of gold prices.

My Lords, would the Minister admit that with hindsight the timing of the sale of gold seems a little eccentric?

No, my Lords, I would not. Again, you have to evaluate this in the long term. If the noble Lord is inviting me to say something about this Government's stewardship of reserves in comparison to their predecessors, I am happy to do that. We do not need to go back very far. On16 September 1992, we sold £28 billion of reserves on a single day and £40 billion of reserves were sold in August and September of that year. Information released fairly recently under the Freedom of Information Act shows that the cost of that mismanagement of the economy was £3.3 billion.

My Lords, would it not be a good idea to increase the holdings of euros, anticipating future entry?

My Lords, I think it was suggested at the time that this process was part of softening the approach to entry into the euro, and the Government's position remains unchanged on that. If it were to be the case, and we were looking to enter, the last thing that we would want to do with our foreign currency reserves would be to get euros. That would be our functional currency.

My Lords, the Government claim to have removed about 30 per cent of risk from their reserves portfolio, but the other side of reducing risk is reducing returns. Do they think that giving up more than £4 billion of gain in the value of their gold reserves represents a good risk/reward calculation?

My Lords, you have to make that evaluation in the long term. The process of dealing with risk does not always mean that you have a less risky portfolio with smaller returns. Part of the process of evaluation is to get the best of both worlds.