The End of Central Bank Selling?
We are close to the end of the fourth year out of the five years of the second Central Bank Gold Agreement in which a 'ceiling' was placed on the sales of gold by the signatories to this agreement of 500 tonnes a year. This piece looks at the prospects for sales by these signatories in the final year of the agreement and the prospects of a third agreement, which would govern sales of gold in the 'open' market.
Take a look at the Table here, which demonstrates the selling by the Central Bank signatories.
France, Portugal, Switzerland, Austria and Sweden appear to be the only nations with significant announced sales still uncompleted.
|Central Bank Gold Agreement 2004-2009|
Notes to table: -
- This now includes the unannounced sales for both years from Spain & Belgium, which totaled 177.1 tonnes for the two years.
- We have excluded the unannounced sales from the totals so as to retain accurate levels of decline in announced sales.
- Germany's sales were for coins, which we do not regard as part of the announced sales for the purposes of this situation.
- The remaining sales for individual countries will be corrected once the three monthly figures are available. The total is the most accurate figure, but will be adjusted then too.
- Switzerland's additional 250 tonnes to be sold has been included.
- We have now included Russia's purchases for last year.
- According to our table, which reports sales as reported on a weekly basis by the E.C.B., only 287 tonnes have been sold to date in this the fourth year of the agreement. However, the World Gold Council has indicated that the amount is closer to 335 tonnes at the moment. If so, it is most likely that Switzerland has almost completed its selling program or will have done so by the end of September and the start of the final year of the agreement. Add to that, perhaps more sales from Sweden to make up the total and we may have seen the completion of the sales by the signatories.
Of these it appears that: -
- France has not been selling for the last couple of months. It is possible that the Banque de France may have been given the OK for that by President Sarkozy. Did he go as far as to OK the halting of sales? It looks like it at the moment.
- Switzerland has almost completed its 150 tonne sales program. It will certainly be complete by the end of 2008.
- Portugal has not been seen in the market for some years now.
- Austria has not sold for the last year.
- Sweden is a slow seller but barely noticed by the market. It looks as though it will sell its remaining 16 tonnes.
- Spain is the unknown seller as it has never announced sales but suddenly comes out of nowhere, dumping a chunk on the market and telling everyone later.
- We are led to believe that the E.C.B. has completed its selling program and may not be seen again selling gold.
So who's left? Nobody!
The turmoil in the currency markets is as much a $ reaction, as it strengthened, as any investor selling. Certainly the fundamentals for gold have not changed one iota and the selling has been almost exclusive to short-term traders. They are likely to cover at some stage to reap their profits.
Nevertheless, the prime purpose of gold in a central bank's portfolio is to [to quote Axel Weber President of the Bundesbank] "counter the swings of the $", a task it has admirably done in the last few months and years. It is likely to continue to do so, giving a degree of stability to these gold and foreign exchange that they would not have achieved otherwise. This period has been a salutary one for central bankers as it has reaffirmed the need to retain gold in their portfolios and not to blindly trust cash flow from investments to the exclusion of gold. While the central bank sellers of gold followed another agenda regarding sales of gold, it was stated that income bearing securities were preferred to gold, hence the sales. But the real reason we believe was to reinforce confidence in the new European currency created in 1999, the start of the first gold sales agreement by the European banks. Previous gold sales by the U.S. and the IMF ostensibly attempted to achieve the same thing, confidence in paper money, but such a policy required a stable currency both in price stability and exchange rate stability. The last two decades of last century achieved that, but it became clear early in this century that such faith in the $ was misplaced. The Euro was met with great success partly because of this and partly because of its market acceptance. It is not out of the woods yet as internal, national economies of the Eurozone baulk at the uneven yoke of one currency for all types of economies. It was seen within the Eurozone and within individual national reserves, therefore, that the gold portion of those reserves beautifully balanced the $ portion, as it is doing now. This has been emphasized in the marketplace, not only for gold, but for silver, which have both moved in the opposite direction to the $, almost precisely.
Therefore the case for central banks retaining gold in their reserves has been definitively made.
We do believe that there will be another Agreement by the signatories of the Central Bank Gold Agreement, whose sole purpose will be to reassure the market that there will continue to be a 'ceiling' on the amounts of gold to be sold in the future, each year, but no promise of sales. This reassures the market place while letting the banks keep their options open.
Should Congress agree to the sale of IMF gold of 400 tonnes then these may well be the only sales of gold by such an institution ever again.
If we are correct, then we are at the point where central bank gold sales are almost a thing of the past!
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