Financial Times notes uncertainty over new central bank gold sales agreement
- Europeans wait nervously for the golden revolution
By Kevin Morrison
Tuesday, September 22, 2004
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
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
"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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