Well, end of one CBGA, start of another. Which says a lot about the Eurozone crisis...

 

THIS isn't your father's gold market, writes Adrian Ash at BullionVault. It isn't even the same market as 10 years ago.

 

Because the buyers are different. So too are the sellers. 

 

During the 1970s, demand was led by investors...primarily in the rich West. Whereas today, the biggest buyers by far are Asian consumers, as the World Gold Council notes in its latest Gold Investor report.

 

Despite much lower incomes, India and China save a huge proportion of their earnings...and spend an ever greater share on gold the more income they earn. 

 

This makes it a "superior good" says Professor Avinash Persaud. Commissioned by the World Gold Council to study world gold buying demand, he says it increases faster than household income or GDP...something we've noted of Chinese gold demand before. 

 

On the supply side too, the gold world has changed. Besides a small rise to record mining output, the key source of the last 5 years was "scrap" sales from people needing to raise cash amid the financial crisis (a flow that's now drying up. Fast). During the 1980s and 1990s, in contrast, central banks were the big source of existing above-ground metal, selling it down as prices fell...and worsening the drop by helping gold miners "hedge" their production by lending them metal to sell as well. 

 

Instead of the gold, Western central banks bought more "productive" assets. You know, like US Dollars, Euros, and government debt. 

 

Come the financial crisis however, central banks as a group worldwide turned into net buyers for the first time since the mid-1960s. First because emerging-market nations wanted to lose some of the Dollars piling up in their vaults (thanks to America's perpetual trade deficit). Second because Western central banks...most notably in Europe...decided that selling gold during a crisis isn't so clever. 

 

So, despite having an agreement in place to cap annual sales...aimed at avoiding the clumsy, price-damaging gold sales made by the UK in 1999...central banks in the West have stopped selling gold altogether. We think that's likely to stay true all through the new 5-year agreement, signed in May and running from tomorrow until September 2019. 

 

The current CBGA (as we gold nerds know it) has seen European states sell barely 10% of their agreed limit. The new agreement doesn't bother setting a cap at all. That might suggest they're secretly planning big sales in future. But on the contrary, the lack of sales under the current CBGA made its 400 tonnes per year limit look stupid. 

 

Fewer than 18 tonnes were sold over the last 3 years in total...all of them from the German Bundesbank to mint commemorative coins. 

 

Just what would be the point of setting a sales limit from here? Fact is, central banks sell gold when times are good. They buy or hold when things are bad. They are not selling today.

 

We don't think Eurozone central bank chiefs have any plans to sell until 2019 at the soonest. We do think there's a message in there about the Eurozone crisis.