Conclusions:

• Gold will remain an important element of global monetary reserves, aided by the 2004 Central Bank Gold Agreement.
• The Agreement set a ceiling on the sales to be conducted not a floor.
• The sales are not designed to achieve the maximum price, but will likely be used to stabilise, not manage the gold price.
• The sales agreed upon are not set in a programme of sales, but will be conducted when the individual Central Banks deem the price is right.
• The signatories to the gold agreement, could well act in concert to 'stabilise' the market. The reality for the markets is that there will be a massive reduction in 'Official' sales of gold, in the years to come.
• The buying of gold by "Official" agencies [Argentina] has begun.
• It is becoming apparent that there will be no further Central Bank Gold Sales agreements, as these banks wish to retain the balance of gold in their vaults.

Official Sales - The big picture

To many, "Official" gold sales are the 'odd' factor in the gold market, the part that doesn't fit into gold, the commodity. And it is not, but then gold hasn't been an ordinary commodity for several thousand years, has it? Oh yes, for the last 25 years the 'powers that be' have tried to make us believe it is so and many of the present generation believe that, because they have seen nothing else. But the fact of the matter is that over 30,000 tonnes of gold are held in the worlds vaults as part of monetary reserves. During all this time, until 1999, the perception of gold that has been foist upon Joe public, is that it is a relic of the past and one that the Central banks have wished to get rid of, completely.

But the reversion to past attitudes towards gold, is happening, behind closed door and through the action we see unfolding slowly, but surely, before us.

"Official" sales since the U.S. experimented with gold sales [before terminating such sales when they were devoured by the market] have become an important factor in the supply of gold to the market. As G.F.M.S. so rightly pointed out, there has been a deficit in the supply of gold to the market this year, so far, and it is beginning to show, not only in the $ price of gold, infected as it is by the devaluing $ itself, but in the Euro price of gold, which is beginning to rise, albeit with much further to go before convincing us all that it is really on its way, much higher.

The 2004 Central Bank Gold Agreement set as a "ceiling" to 'Official' gold sales 500 tonnes per annum. A glance at the table below shows that this target may be achieved in the first year, if all the commitments to sell gold were delivered in 2005. Thereafter, the amounts of gold remaining of the sales commitments dry up and quickly.

• Bear in mind that each of the nations announcing their sales did not make a commitments to sell these amounts annually, but over the next five years!
• What is clear to all observers now, is that no commitment to sell gold at any particular dates in the next five years has been made. Hence, these sales may well not occur in the next year, but could well be postponed until the next, or even the last year of the Central Bank Gold Agreement.
• There has been no 'policy' decision on what criteria will trigger sales of gold during this five years. This removes the concept of transparency from 'Official' sales of gold. In some minds this will be seen as a hidden agenda or even a 'conspiracy' by the Central Banks involved.
• What is for sure too, is that these sales, taking place in the face of a decaying paper currency world, for paper currencies, will not be seen as decent financial management.
• The reality for the markets is that there will be a massive reduction in 'Official' sales of gold, in the years to come.
• The buying of gold by "Official" agencies [Argentina] has begun.

It is against this background that the French made their announcement and did not postpone it until next year as they indicated previously. Perhaps the rising gold price and the falling $ prompted the early confirmation of sales.

The French announcement / statement. [Gold Holdings: 3,025 tonnes - 56.6% of reserves]
After an announcement was made that the French Central Bank was, after all, going to sell from 500 to 600 tonnes of gold over the next 5 years, a statement was issued jointly by the Banque de France and the French Finance Ministry: "Extra revenues for the state resulting from this action will be dedicated, as committed, to the reduction of public deficits and to the financing of longterm employment, particularly in the area of research." Previously, the, Bank of France governor, Christian Noyer, has said proceeds of any gold sales would be invested in interestbearing instruments and only the profits would be used for the state budget. Note well, that this was a joint statement by the Bank and the Finance Ministry.

Monsieur Noyer had originally expressed his unhappiness at the sales, which were originally proposed by a government Minister and not the Central Bank itself. He likened the suggestion of funding the research by selling the gold, to "selling the family jewels". With the poor performance of France in abiding by its E.U. commitments, the French had to do something about its public deficits, even if it was a token gesture. So the seemingly grand gesture of selling some gold to make the gesture to this cause, was found to be a convenient political expedient, in our opinion. And a token gesture is all it is, if one looks at the numbers. The tiny contribution this will actually make to filling the gaping wound of the French deficits, makes the reality of these sales and their purpose, underwhelmingly inadequate. The proposed sale represents less than 20% of the French reserves and does not bring the % of reserves that gold forms down below 40% and nowhere near the European Central Bank's level of 15%. In our mind's eye, we have a picture of M. Noyer's arm being twisted behind his back, to ensure that the gesture was made. Perhaps the recent memory of a departing Bundesbank President Herr Welteke, [who crossed swords with his government] helped his decision too?

The decision is devoid of financial sense! And we believe this is M. Noyer's opinion too. The price of his consent may well have been the reduction in the amount of gold to be sold? Why? We are sure that the concept of selling gold, even for Euros, is a decision that was not willingly taken by Noyer, if indeed it was taken by him. If he sells it for U.S.$, as it continues to fall, we will have made our point. Previously M. Noyer said:

"The central bank will wait until gold prices are "appropriate" before agreeing the sale......." In addition, he added "The bank will certainly take into account the price. If we feel the timing is not appropriate, then we will wait". So when will the sales take place and at what price? Maybe, if the gold price rises high enough, the French government may rescind this decision? Maybe the political climate may change so that France can keep the family jewels? Certainly, the longer the sales are postponed the more time there will be for a policy change.

Past / Present Sellers	Likely sales 2004	Potential sales 2005 - 2006 - 2007 - 2008 - 2009
U.K	0	------------------- 0 ------------------
Netherlands	59	----------------- 150 -----------------
Switzerland	243	---- 130 [by January 2005] -----
Germany	6	------------------- ? ------------------
Portugal	90	------------------- ? ------------------
France	0	----------------- 600 -----------------
Austria	0	------------------ 90 -----------------
Italy		------------------- 0 ------------------
Total	398	----------------- 880 -----------------

Notes: The market has been used to a supply of 400 tonnes per annum for the last 5 years.

The Scandal of the British gold sales.

It takes a huge amount of blustering, a very thick skin and a large measure of deafness to defend the sales of British gold, which were half the gold reserves of the U.K. at prices that look as though they were achieved in a distressed liquidation sale. But that attitude persists, not the least in Mr Brown, trying to persuade other nations to revalue their gold reserves then give the increase in value away to poor countries. [Even the British Chancellor must have had his tongue in his cheek when he tried that one on the international community.]

The sale of 395 tonnes of Britain's gold bullion, between 1999 and 2001, took place with gold at a 20year low. Had he retained that gold, it would have been worth 2.85 billion $ more today. The sale is now being recognised as an act of financial incompetence. Patricia Hewitt, who was then the economic secretary to the Treasury, told British M.P.s that over time gold had been "a very poor investment". It seems unbelievable that these prominent figures should say what is financial irresponsibility, repeatedly. Most people believe the sales were motivated by the likelihood of Britain joining the European currency and forsaking the pound.

Austria to sell 90 tonnes over the next 5 years.
The Austrian Central Bank, three weeks ago announced that Austria would sell 90 tonnes of gold over the next 5 years. Without even blushing, it added to this saying to us that whilst gold had performed well, recently, gold did not earn a return, so was not deemed a vital component of reserves. It is staggering that he should say this, particularly after the falls in the global currency, the U.S. $, and its negative overall return and in the light of the low prices achieved by other "Official" sellers of gold.

The amount Austria is to sell, not necessarily this year or next, but during the next five years is not a significant addition to the total to be sold by the signatories to the Central Bank Gold Agreement. The announcement is significant in that it removes the Austrian Central Bank as a major seller of gold for the next five years.

A change in attitudes towards Eurozone gold reserve?
The question of gold sales has already been discussed amongst Eurozone Central Bankers and the statement from the President of the Bundesbank that gold was the announcement in June, by the new Bundesbank President, Alex Weber, who said the following:

"the decision on how much gold the German central bank would sell depended on the outcome of discussions with 12 other central bankers representing nations using the Euro, on currency reserves". The Bundesbank considers gold a form of "natural hedging against strong swings in the dollar" and is giving it "an important role" in the management of its funds, Weber said, according to Die Zeit, a German magazine.

The significance of this statement is heavy, because it reveals new attitudes to gold by European Central Bankers:

• The Eurozone Central Banks discussed currency reserves and their makeup.
• The discussions encompassed all Eurozone Central Banks and now affects more than 20 countries in Europe. The percentage of the developed world they represent [and its Trade], is significant.
• Their views on what constitutes foreign exchange and currency reserves will deeply influence the views of the rest of the World's Central Bankers, particularly towards gold.
• This positive statement by the Bundesbank indicates a possible change of policy by the Bundesbank.

Please note the first clause of the 2004 Central Bank Gold Agreement, "Gold will remain an important element of global monetary reserves." We do not believe that this attitude has changed, particularly in the face of the extremely porr performance of the U.S. $ the main alternative to gold.

Take another look at the potential sales figures in the table above. The ceiling is 2500 tonnes total wilth a maximum of 500 tonnes sold a year. This tells us that the ceiling did not express their intentions, merely set limitation on the maximum to be sold. There were no limits set on the minimum to be sold. The figures above represent the present minimum and more importantly the present reality of "Official" gold sales to be conducted, 'sometime' in the next five years!

Why not sell direct to China or Russia?
The reality of selling anything wisely, is that you sell it all for the best price achievable, to whomsoever wants to pay that price. To go to the open market to sell a little at a time is certainly not the best way to do that.

Some may say why not sell it like Switzerland does, so much each week and average the price over time? That doesn't make sense if you are aware that when you stop selling, the prices will rise, as a result of the cessation of your sales. Why not hold back and let the price rise as high as possible, phone up a potentially large buyer, that has made its intentions known that it is a buyer and sell it all at once, for the best price possible? This would serve the interests of your nation the best. So why is this not being done?

We do understand that the Central Banks have no mechanism to sell gold to each other at the moment and that none of them trust each other. We do understand that the gold has to be cleared through an account in London in the present situation and so any sale/purchase has to be conducted through the market. These are obstacles, but not so large that a willing buyer and a willing seller cannot overcome.

It is clear that Argentina, and likely Russia and possibly China and Japan could welcome the opportunity to buy a large block of gold to diversify their horrific concentration of U.S.$ in their reserves into gold.

This then begs the question, what is behind the way these sales are to be conducted?

Why no dates given?
The oft quoted purpose of the Central Bank Gold Agreement, was also to 'bring transparency to Central Bank Gold dealings'. This seems to have evaporated. Why? These sales will take place unannounced, seemingly when prices are 'appropriate'. At one time it could be read that this constituted some form of" conspiracy" to manage the gold price.

However, when we consider that individually, these amounts are too small to bring the gold price down any distance or any length of time. At best they will allow the Central Bankers to get a better price. This now seems to be the real purpose behind the sales after all. Consider this, Argentina bought 55 tonnes of gold so far this year. The new States based E.T.F. streetTRACKS Gold Trust purchased +87 tonnes of gold in their first two weeks since listing. Should investment demand, consistent with the fears already reflecting the decaying $, be made, the above amounts will not slake even a moderate thirst for gold.

But, if the Central Banks act 'in concert' together, at times when the gold price 'spiked', they could bring a measure of stability to what is a relatively small market. Stability, in prices is important for a reserve asset, as it should be for the U.S. $.

Such a policy of 'no timetable', brings two features to the market:
1. An overhang of potential sales, which may sober up a heady market.
2. A 'price spike' removing tool.

If this is the correct conclusion, we see that there will be no further Central Bank Gold Agreement after the termination of this one, because these nations will proved by their actions that they want to keep the rest of their gold, at higher stable values as "a natural hedge against strong swings in the U.S.$", the global reserve currency.

The 2004 Central Bank Gold Agreement - details:
The 2004 Central Bank Gold Agreement [set to begin on the 27th of September, as announced on the 8th of March] is as follows:

In the interest of clarifying their intentions with respect to their gold holdings, the undersigned institutions make the following statement:

1. Gold will remain an important element of global monetary reserves.
2. The gold sales already decided and to be decided by the undersigned institutions will be achieved through a concerted programme of sales over a period of five years, starting on 27 September 2004, just after the end of the previous agreement. Annual sales will not exceed 500 tons and total sales over this period will not exceed 2,500 tons.
3. Over this period, the signatories to this agreement have agreed that the total amount of their gold leasings and the total amount of their use of gold futures and options will not exceed the amounts prevailing at the date of the signature of the previous agreement.

This agreement will be reviewed after five years.

The signatories to the Agreement will be:
The European Central Bank	Banca d'Italia	Banco de España
Banco de Portugal	Bank of Greece	Banque Centrale du Luxembourg
Banque de France	Banque Nationale de Belgique
Central Bank & Financial Services Authority of Ireland		De Nederlandsche Bank
Deutsche Bundesbank	Oesterreichische Nationalbank	Suomen Pankki
Schweizerische Nationalbank	Sveriges Riksbank

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