Central Banks to announce Gold sales - The 2004 Central Bank Gold Agreement

By: Julian D. W. Phillips | Tue, Sep 14, 2004
Print Email

The Central Banks involved in the 2004 Central Bank Gold Agreement are to announce the amounts of gold they intend selling under this agreement at the I.M.F. meeting early October.

At present they have already agreed that there will be a 'ceiling' of 500 tonnes of gold sold per annum under this agreement. We have been led to believe that this is the amount that will be sold each year. However, announcements made subsequently, have not confirmed that this amount will, in fact, be sold. Since the agreement [See details at the end of the article] was announced earlier this year, the market has been waiting expectantly for confirmations of further sales. As of this moment intended sales may well fall short of the 500 tonne ceiling. The "Washington Agreement" is due to terminate on the 26th of September this year and the new agreement will come into force thereafter. These announcements we believe will demonstrate the continued value of gold in the reserves of the European Banks, despite these sales. It may well be that these announcements confirm our expectation of lower sales than the 500 tonnes but imply that the sales that do take place will be conducted in such a way as to stabilise any overheated market. A look at the present situation leads us to expect certain likely announcements in October, in Washington at the I.M.F. annual meeting.

The Present Situation

Past/Present Sellers Potential Sales 2005 - 2009
U.K. 0
Netherlands 150
Austria 0
Switzerland 130
Germany 600
Portugal ?
France 500
Italy ?
Total 1380
Average Per Annum 276 tonnes
Notes: Definite Sales in Black - Possible sales in Blue

The market has factored into the gold price, minimum sales of 500 tonnes per annum for the next five years, by Central Banks. Reductions in this amount will have to be factored into the price subsequently.

Earlier this year, under the previous Bundesbank President Ernest Welteke, it appeared certain that Germany was marching ahead to sell 500 tonnes under the new agreement. All in the market expected that that these sales would be spread evenly over the five years. But Alex Weber, the new Bundesbank President said earlier this year, "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. No further talk of the sale of 500 tonnes of gold from Germany has been heard since. So far, we are led to believe that Germany has only requested an option to sell this amount from the other signatories of the new agreement. It will take Germany's Parliament to pass new legislation to permit such sales. No such planned legislation has been announced to date. We expect them to announce the quantity they sell in Washington too.

The changes in attitude to gold.
During the year to date, Europe's Central Bankers have been reviewing the importance of gold in their reserves. Undoubtedly there has been a change in their attitude to Gold markets recently. With the risk now attendant in holding U.S. $ as the main reserve asset, the qualities of gold as a solid monetary instrument have become increasingly clear. As there is no possibility of the $'s role being reduced in the monetary system for many years, the position of gold has been reinforced as a present effective alternative to currencies in general.

Comments from Central Bankers in general have demonstrated that the sale of gold from reserves is not proving a wise policy. With the trading partners of the U.S. [most of the developed and some of the underdeveloped world] concerned with the maintenance of their competitive position, the effectiveness of holding currencies other than the U.S. $ as an alternative are disappearing. Gold is therefore singularly effective as a counter to the swings in the $, so warrants an important role as a reserve asset. With the demand for gold set to continue at high levels as an investment, the previously held arguments against gold [that it yields no income] look weak, particularly when one understands the role of reserves. They are there to retain value in all seasons, particularly bad ones. Holding all reserves in income earning assets that does not provide that value in times of distress, is clearly not prudent.

It is with this in mind that Central Bankers have been discussing gold in their reserves.

Announcements to be made in early October.
At the I.M.F. conference in October, the signatories of the 2004 Central Bank Gold Agreement will announce details of their intentions regarding actual sales under the agreement.

Perhaps the most important of these will be an extension of the Dutch Central Bank statement that, "The sale will be slotted into (the schedule). There is an annual tonnage for all countries in the gold agreement, and we talk about it together how to sell it, so there is some flexibility there, It doesn't really matter to us when we do it. We are flexible, and so are the others." The annual tonnage referred to is the 500 tonnes per annum.

From this it is evident that there will be no even regular flow of gold to the market from the Central Banks, with so much a month being sold. Each will seek a price level and sell at that retaining the flexibility to stand back until a higher price is achievable. Undoubtedly this has the power to be read as managing the gold price. But the quantities of sales involved have already been factored into the price of gold currently, so should prove insufficient to manage the gold price. So we do not accept that these sales will be engineered to keep the prices down, but will be an attempt to maximise the sales proceeds. Why? Our conclusion is that they do believe they will see higher prices in the market. On top of that, any shortfall of the planned 500 tonne ceiling, will be seen as an incentive to take the gold price higher and affirmation that gold is a sound investment. The reality of gold sales being less than the ceiling will be seen as a retention of gold by the Central Banks. Hence the sales that do take place will have to be such as to cap the spiking price.

The announcement, we have no doubt, will be intended to leave the gold market as unaffected as possible. This will be difficult unless the full 500 tonnes worth of sales, per annum is announced. Any deviation from this will push the attitude of all Central Bankers, outside the agreement, towards gold. In turn gold as an investment will be encouraged. What will also be intended in the statement is that if there is a shortfall from the ceiling of 500 tonnes of sales, the market will see the position of the "Official" sales as being used to cool any spiking of the gold price. After all a stable gold price enhances the value of gold as a reserve asset?

Subscribers to Gold - Authentic Money will be provided with our views of the expected impact on the gold price itself.

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 ,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. Gold will remain an important element of global monetary reserves.

4. 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.

5. 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

Please note that the Bank of England is no longer a signatory The Bank of Greece, a new Member of the " Common Market" [E.U.] is now a signatory, leaving the total at 15 signatories.

New Services:
 • For one of any of these new services our Subscription price is ... $169 p. a.
 • For two of these new services our price will be another... $126 p.a. [total $295 p.a.]
 • For three of these new services our price will be another $100 ... $100 p.a. [total $395 p.a.]
Weekly
1. "Changing Tack - The Metals Gold & Silver" - Short term Technicals on: Gold & Silver + Gold/Silver Ratio
2. "Changing Tack - Indices" - Short term Technicals on the Gold Indices: HUI - XAU - JSE
3. "Changing Tack - Ratios" - Short term Technicals on: Gold/ Dow Jones Ind. Ratio Gold/ $ Ratio & Gold / Silver Ratio.
Approximately Bi Monthly
4. "Gold - Authentic Money - Gold & Silver" with The Gold Market report in full + Medium/Long term Technicals on Gold [in $ & Euros] & Silver - Gold Silver Ratio + main article on gold market facets.
5. "Gold - Authentic Money - Gold's Macro Economic scene" - Market Perspectives Medium/Long term Technicals on Dow Jones - Gold/Dow Jones I.A Ratio - Gold / U.S.$ Index Ratio + main article on gold market facets.
6. "Gold - Authentic Money - Indices" - Gold Market report in full + Medium/Long term Technicals on XAU - XAU / Gold Ratio - J.S.E. in $ J.S.E. / Gold price Ratio

Our main three publications are lower priced overall and they are:
   1. "Gold - Authentic Money"
   2. "Changing Tack"
   3. "Changing Tack - Gold & Precious Metal Shares"

Website: www.authenticmoney.com
Contact us at: goldauthenticmoney@iafrica.com


 

Julian  D. W. Phillips

Author: Julian D. W. Phillips

Julian D. W. Phillips
Gold Forecaster

Julian D. W. Phillips

"Global Watch: The Gold Forecaster" covers the global gold market. It specializes in Central Bank Sales and details, the Indian Bullion market [supported by a leading Indian Bullion professional], the South African markets [+ Gold shares shares] plus the currencies of gold producers [ Euro, U.S. $, Yen, C$, A$, and the South African Rand]. Its aim is to synthesise all the influential gold price factors across the globe, so as to truly understand the global reasons behind the gold price.
FIND OUT MORE

Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold-Authentic Money / Julian D. W. Phillips, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold-Authentic Money / Julian D. W. Phillips make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold-Authentic Money / Julian D. W. Phillips only and are subject to change without notice.

Gold-Authentic Money / Julian D. W. Phillips assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit which you may incur as a result of the use and existence of the information provided within this Report.

You should be aware that the Internet is not a completely reliable transmission medium. Neither Gold-Authentic Money / Julian D.W. Phillips nor any of our associates accept any liability for any loss or damage, including without limitation loss of profit, which may arise directly or indirectly from your inability to access the website for any reason or for any delay in or failure of the transmission or the receipt of any instructions or notification sent through this website. The content of this website is the property of Gold-Authentic Money or its licensors and is protected by copyright and other intellectual property laws. You agree not to reproduce, re-transmit or distribute the contents herein.

Copyright © 2003-2016 Julian D. W. Phillips

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com