Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Early Investors set to win big as FDA fast-tracks this ancient medicine - 3rd Dec 20
New PC System Switch On, Where's Windows 10 Licence Key? Overclockers UK OEM Review (5) - 3rd Dec 20
Poundland Budget Christmas Decorations Shopping 2020 to Beat the Corona Economic Depression - 3rd Dec 20
What is the right type of insurance for you, and how do you find it? - 3rd Dec 20
What Are the 3 Stocks That Will Benefit from Covid-19? - 3rd Dec 20
Gold & the USDX: Correlations - 2nd Dec 20
How An Ancient Medicine Is Taking On The $16 Trillion Pharmaceutical Industry - 2nd Dec 20
Amazon Black Friday vs Prime Day vs Cyber Monday, Which are Real or Fake Sales - 1st Dec 20
The No.1 Biotech Stock for 2021 - 1st Dec 20
Stocks Bears Last Chance Before Market Rally To SPX 4200 In 2021 - 1st Dec 20
Globalists Poised for a “Great Reset” – Any Role for Gold? - 1st Dec 20
How to Get FREE REAL Christmas Tree 2020! Easy DIY Money Saving - 1st Dec 20
The Truth About “6G” - 30th Nov 20
Ancient Aztec Secret Could Lead To A $6.9 Billion Biotech Breakthrough - 30th Nov 20
AMD Ryzen Zen 3 NO UK MSRP Stock - 5600x, 5800x, 5900x 5950x Selling at DOUBLE FAKE MSRP Prices - 29th Nov 20
Stock Market Short-term Decision Time - 29th Nov 20
Look at These 2 Big Warning Signs for the U.S. Economy - 29th Nov 20
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
BLOCKCHAIN INVESTMENT PRIMER - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20
MUST WATCH Before You Waste Money on Buying A New PC Computer System - 27th Nov 20
Gold: Insurance for Prudent Investors, Precious Metals Reduce Risk & Preserve Wealth - 27th Nov 20
How To Spot The End Of An Excess Market Trend Phase - 27th Nov 20
Snow Falling Effect Christmas Lights Outdoor Projector Amazon Review - 27th Nov 20
4 Reasons Why You Shouldn't Put off Your Roof Repairs - 27th Nov 20
Further Clues Reveal Gold’s Weakness - 26th Nov 20
Fun Things to Do this Christmas - 26th Nov 20
Industries that Require Secure Messaging Apps - 26th Nov 20
Dow Stock Market Trend Analysis - 25th Nov 20
Amazon Black Friday Dell 32 Inch S3220DGF VA Curved Screen Gaming Monitor Bargain Deal! - 25th Nov 20
Biden the Silver Bull - 25th Nov 20
Inflation Warning to the Fed: Be Careful What You Wish For - 25th Nov 20
Financial Stocks Sector ETF Shows Unique Island Setup – What Next? - 25th Nov 20
Herd Immunity or Herd Insolvency: Which Will Affect Gold More? - 25th Nov 20
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Will More Central Bank Gold Sales Be Announced or is this All we are going to see?

Commodities / Gold & Silver Jun 17, 2007 - 08:32 PM GMT

By: Julian_DW_Phillips

Commodities

Since our inception we have run this table on Central Bank gold sales under the Central Bank Gold Agreement. We have always differentiated between the sales decided upon earlier and sales about which no announcement was made.

We have done this for a reason, despite the fact that while the first “Washington Agreement” stated from the outset, that they would only sell gold from sales “already decided”, the second Central Bank Gold Agreement stated differently, that gold would be sold from “sales already decided and to be decided ”.


On the 26 th September 1999, the signatories to the “Washington Agreement” made this statement:

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

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

  • The above institutions will not enter the market as sellers, with the exception of already decided sales.

  • The gold sales already decided will be achieved through a concerted program of sales over the next five years. Annual sales will not exceed approximately 400 tonnes and total sales over this period will not exceed 2,000 tonnes.

  • The signatories to this agreement have agreed not to expand their gold leasing and their use of gold futures and options over this period.

  • This agreement will be reviewed after five years.

 

The difference is huge it would seem, because in the first agreement the market knew for certain what would be sold, thus removing all uncertainty from the prospective European Central Bank sales [in addition to the tacit agreement by the Fed, the Bank of Japan and the B.I.S. that they would not sell gold either]. This transparency was a confidence builder for gold, as the gold price demonstrated thereafter.

Consequently, the gold market appreciated that the 400 tonne sales per annum could easily be absorbed, without damaging the price. But the addition of the phrase “and to be decided” in the second agreement seemingly destroyed that transparency. Nevertheless, the market accepted that 500 tonnes per annum could also easily be absorbed by the market per annum and the price continued to prosper and would cap any remaining uncertainty.

The history of the second agreement has clearly defined that the “ceiling” of 500 tonnes was only that. Any shortfall on that amount was simply because the signatories decided to not sell up to that amount for whatever reasons. Signatories like Germany have to date, chosen not to exercise their “option” to sell up to a total of 500 tonnes over the period of the Agreement.

France came in as a potential seller of up to 600 tonnes over the life of the Agreement, but an unwilling one prompted by pressure from the now President of France. The sales were announced at the beginning of the Agreement.

It became clear that the “sales to be decided upon” have been, to date, restricted to announcements made at the start of the Agreement with only Belgium and Spain making no announcement whatsoever.

  • Spain has been selling under pressure to do something about its Trade deficit, despite the Finance Minister's statement. With the signatories under-selling last year and heading that way this year too, additional sales from Spain are possible still.

  • Germany annually announces whether or not it will sell any gold, retaining its option, but indicating it is not an attractive one, with statements like “gold is a useful counter to the $”, indicating that they are unlikely to sell in the future.

  • Belgium has sold nothing in this and the last CBGA year, so indicating that it is unlikely to sell again in this agreement, but we cannot be certain of that.

So far the signatories of the C.B.G.A. have acted responsibly and with regard to the orderliness of the market by making announcements ahead of sales at the beginning of the agreement. This was vital to prevent the fear of the prospect of unlimited, unexpected, Central Bank sales, as was the case prior to the “Washington Agreement's” announcement. To suddenly announce sales then proceed with selling in the middle of the agreement could destabilize the market despite the “ceiling” limitations.

The Swiss National Bank is adjusting the composition of its currency reserves. Before the end of September 2009 it will sell 250 tonnes of gold and increase its foreign exchange reserves by a corresponding amount. The overall level of currency reserves will remain unchanged.

The gold sales fall within the bounds set by the second Gold Agreement of 8 March 2004, in which the central banks of the Eurosystem, plus the Sveriges Riksbank and the Swiss National Bank, agreed to limit their gold sales over a period of five years, beginning on 28 September 2004. The Gold Agreement specifies that annual sales by all signatories may not exceed 500 tonnes and that the total sales volume over this period shall not amount to more than 2,500 tonnes. For the gold sales it was planning, the SNB was allocated a quota not claimed by other central banks that were party to the agreement of 2004. The SNB has chosen an approach for its gold sales that will avoid market unrest, with regular sales transactions.

The Swiss National Bank holds currency reserves in the form of foreign currency and gold, thereby ensuring that it has room for maneuver in its monetary policy at all times. As a result of the sharp rise in the price of gold, the proportion of the currency reserves held as gold has increased by about a quarter since mid 2005, from 33% to the current level of 42%. The purpose of the SNB's gold sales is to rebalance the composition of currency reserves with respect to its monetary policy requirements. Moreover, by reducing its gold reserves and increasing its foreign exchange reserves, the overall risk on SNB assets will decline. Once the sales have been completed, the Swiss National Bank's gold holdings will amount to some 1,040 tonnes.

 

A forced seller like Spain has the freedom to sell gold because of outside pressures, but where there is no outside pressure, the signatories have made clear in advance what they were going to do via public announcements. For instance Germany has kept its “option” to sell 600 tonnes, open. Until the announcement by Switzerland today no further sales were going to take place.

The New Sales From Switzerland

In the box above, you can see the Official press release announcing a further 250 tonne sale of gold by Switzerland.

The wording of this statement is extremely revealing and opens a door we could not look into clearly until now. The use of ‘options' to sell, given to the signatories was mentioned by Germany, but we could not define this for sure. With this information we can now see what sales can be expected and from whom. Take a look at the Table above [ in this week's issue ] and you can see that a total of 1480 tonnes of gold sales was announced for this agreement. But remember that Germany had the option to sell 500 tonnes, which was not included in the total. Now add to this the 250 tonnes of sales from Switzerland [on top of the 130 tonnes of sales left over from the “Washington Agreement years] to be completed by 26 September 2009] and you get 2230 tonnes. But Spain has sold 108 tonnes this year already, taking the total to 2,338. Deduct this from the total and you get another 162 tonnes left to come from an unannounced or announced seller. We expect this to come from Spain.

We would like to point out that this was not claimed by Switzerland from another Central Bank but was part of the original options schedule granted to each Central Bank, whereby Switzerland gained the option to sell this amount, an option it is now taking up.

If Germany retains it present views then we must deduct that amount [500 tonnes] from the total possible sales of 2500 tonnes. If Portugal and Austria keep away from the market as they are doing at the moment then they will not sell their ‘option' amount, which makes another 160 tonnes approximately, to be taken off the market, meaning that the probable total remaining to be sold is in the order of 700 tonnes, to be sold over the next 28 months [average 6.25 tonnes a week]. If current patterns are to be followed, the actual amounts to be sold will coincide with the seasonal patterns, so as to cause the least downward pressure on the price. So expect maximum Central Bank sales between March and May and between September and December].

At least now we have a clear picture of what lies ahead by way of Central Bank sales.

How Will Switzerland Sell?

Switzerlan set a pattern of selling in the “Washington Agreement” and in the early part of the C.B.G. Agreement of steadily an uninterruptedly selling a nearly fixed amount a week. So we would expect them to do the same, particularly in the light of their statement [see box]. If they decide to begin selling now then expect sales of between 2 and 2.5 tonnes sales a week until the end of the Agreement. Of course the amount they sell weekly is determined by when they start.

And The Affect On The Gold Price?

With supply remaining at near present levels plus Central Bank sales as above, de-hedging continuing at the present pace [we estimate], Indian physical buying rising steadily, alongside scrap remaining steady [we do not believe that scrap sales will rise with the price, but with gold price ‘spikes'], the gold price will steadily rise. Now add investment demand, the key to the gold price. If that continues or even to grow, we fully expect the gold price to continue rising and at times vigorously, with ‘spikes', falling back thereafter.

Next week, the Reasoning Behind Switzerland's Policy Decision.

Please subscribe to: www.GoldForecaster.com for the entire report.

By Julian D. W. Phillips
Gold-Authentic Money

Copyright 2007 Authentic Money. All Rights Reserved.
Julian Phillips - was receiving his qualifications to join the London Stock Exchange. He was already deeply immersed in the currency turmoil engulfing world in 1970 and the Institutional Gold Markets, and writing for magazines such as "Accountancy" and the "International Currency Review" He still writes for the ICR.

What is Gold-Authentic Money all about ? Our business is GOLD! Whether it be trends, charts, reports or other factors that have bearing on the price of gold, our aim is to enable you to understand and profit from the Gold Market.

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.

Julian DW Phillips Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules