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Financial Times notes uncertainty over new central bank gold sales agreement

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  • GATAComm@aol.com
    Europeans wait nervously for the golden revolution By Kevin Morrison Financial Times Tuesday, September 22, 2004
    Message 1 of 1 , Sep 22, 2004
      Europeans wait nervously for the golden revolution

      By Kevin Morrison
      Financial Times
      Tuesday, September 22, 2004

      http://news.ft.com/cms/s/48d063cc-0c34-11d9-8318-00000e2511c8.html

      It is six months since European central banks
      announced they were renewing the gold-selling
      pact that has helped stabilise prices over the
      past five years. But a week before it comes into
      force, gold traders are waiting nervously for the
      details on who will be selling how much.

      The biggest uncertainty is whether the 15
      signatories to the new accord will be able to sell
      the maximum 500 tonnes a year set for the new
      five-year pact, up on the 400 tonnes a year under
      the existing sales programme. Central bankers
      say there are enough sellers of gold among the
      European central banks to fulfil the planned sales
      quota. But bullion traders say not enough central
      banks have committed to selling their bullion
      under the new pact. They see this as a sign that
      the banks may struggle to dispose of all the gold
      for sale.

      Since the European Central Bank and 14 other
      European central banks announced in March that
      they planned to renew the existing five-year
      agreement, almost 1,400 tonnes of the planned
      2,500 has been earmarked for sale. The bulk of
      these sale commitments have yet to be fully
      confirmed.

      "We doubt whether the renewed agreement will
      lead to an increase in gold sales by central banks.
      Rather, we believe there is a strong possibility
      that the signatory central banks could end up
      selling materially less gold," said John Reade, a
      precious metals analyst at UBS.

      However, one central banker said there was full
      commitment to sell the proposed amount. "I have
      no reason to doubt that this amount will be sold."

      The aim of the first pact in 1999 was to bring price
      stability and greater transparency to the gold
      market by wrapping the separate bank sales of
      bullion under one co-ordinated sales programme.
      When Gordon Brown announced the Bank of
      England was selling gold in 1999, the price
      dropped to a near 20-year low.

      However, the signatories are under no obligation
      to reveal when and how much gold they plan to
      sell. "There are no requirements for us to reveal
      our positions before the new agreement starts,"
      said the central banker.

      The Netherlands and Switzerland have been the
      clearest about their intentions. The Netherlands
      plans to sell 165 tonnes over the next five years.
      Switzerland said it would sell 130 tonnes, taking
      its bullion holdings from 2,600 tonnes in 1996 to
      about 1,300 tonnes.

      Germany has said it has an option to sell up to
      600 tonnes under the new accord and France has
      said it intends to sell 500 tonnes. However, the
      central banks of both Germany and France are
      battling with their respective finance ministries
      over how to spend the sale proceeds. Germany
      and France are the two biggest holders of gold
      within Europe and are key to the new agreement.

      The position of the third biggest holder, Italy, is
      also unclear. The Bank of Italy said last week
      that it had no plans to sell its gold reserves,
      which amount to about 2,500 tonnes. However,
      bullion traders and analysts have said the Italian
      bank might still turn seller.

      Uncertainty about the gold sales would only
      affect prices if the banks were to announce that
      they were unable to sell the full amount.

      Gold prices have ended above $400 a troy ounce
      for most trading days during the past four weeks,
      and were $408 a troy ounce in London yesterday
      before the Federal Reserve meeting.

      The International Monetary Fund meeting in
      Washington on October 3 may provide further
      details about the renewed plan. The IMF helped
      co-ordinate the original agreement.

      ----------------------------------------------------

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