The price of gold slumped to the lowest point for 20 years yesterday after Britain launched controversial bullion sales with an auction drawing plenty of bidders looking for a bargain.

The price fell below $258 (€252) an ounce for the first time since May 1979 after Britain sold 25 tonnes of the metal in the first auction of a four-year programme to switch more than half its gold reserves into foreign currencies.

The Bank of England managed to place the gold, equal to about 804,000 ounces, at an allotment price of $261.20, and noted keen interest in the auction which was five times oversubscribed.

But analysts said most offers had been pitched at far below the final settlement price, and pointed to the slumping gold price as evidence.

"Most of those big bids were cheap bids, with very low prices," a gold expert with Mitsui Bussan Commodities, Mr Andy Smith, said.

By late afternoon, the spot price of an ounce of gold had recovered slightly to a fixing level of $257.60, having fallen as low as $257.05 - the lowest level since May 18th, 1979.

Investors have been nervously awaiting the results of yesterday's auction ever since Britain stunned the market in May by announcing its radical plans to sell 415 tonnes of its 715-tonne gold stock and channel the proceeds into yen, dollars and euros.

The Bank said it wanted to restructure its reserves into more flexible instruments, but the announcement pulled the bottom out of a market already shaken by the global financial crisis.

Ultimately, the Bank of England raised about $210 million from the sale.

The world's biggest gold producer, South Africa's Anglogold, condemned the way Britain had gone about the sale, arguing that it had given speculators a free hand to bet against gold.

"The Bank of England chose the most disruptive method to the market," said Anglogold marketing director, Mr Kelvin Williams.

Yesterday's first sale is to be followed by a series of further gold sales, with four auctions of 25 tonnes to be held in September, November, January and March respectively.

Most analysts said that, for all the effect on the gold market price, the auction had passed off reasonably well for the Bank of England, which had at least managed to find buyers for the increasingly out-of-favour metal.