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The end of central bank gold sales?

A snippet from the latest weekly issue of

IN THE LAST few months a great number of gold commentaries have emphasized sales by the European central banks. These sales have been heavy. Along with reduced buying for the exchange-traded gold funds – and even net ETF sales – they have clearly held back the gold price.

   But a major point has been overlooked in such commentaries. How long can these central bank sales last?

   The amount of gold sold per year is not the sole limitation on these central bank sales. The announced total for each individual bank under the Central Bank Gold Agreement is the defined limit.

   Looking at the sales made so far – and comparing against the total limits agreed – we find that by the end of April this year, the amount remaining for announced sales was down to 617.5 tonnes.

   We are currently in the third year of this Agreement. The Agreement also includes a total ceiling of 500 tonnes per annum. The year commences on 27th September each year. So far, the Agreement has been kept.

   To date, fewer than 500 tonnes of gold have been sold in each of these years, with the total of last year’s sales below 400 tonnes. In this, the third year, we still have another five months to run, with a further two years thereafter until the Agreement runs out.

   If sales continue at the rate we have seen over the last two months, these sales will last just over a year before they are complete. However, not all the signatories have announced their intended sales.

   The two nations that kept quiet about their intensions are Spain and Belgium. But the Table gives us the history of their sales. It shows that Belgium has not sold gold for the last 19 months. We have no reason to believe they have more to sell in the remaining Agreement period.

   Spain on the other hand has sold 147.1 tonnes to date. Last year the Central Bank of Spain led us to believe that these sales were tied into the maturing of Call Options they had previously sold, that were now being taken up. The pattern of present sales gives us reason to believe the same is happening now. Clearly, however, the prices at which the Central Bank of Spain sold these contracts would have been the gold prices of up to five years ago – back around $350 per ounce – making a sad sight indeed for members of the Bank’s board of Directors, let alone the Spanish public.

   Spain has sold 54.6 tonnes since the beginning of this CBGA year, the bulk of it in March (40 tonnes). The total sales levels for the last two complete years indicate that we must be near to completion of this year’s sales by Spain.

   We suspect France has been a seller of note. It is likely to continue to sell until the Banque de France has exhausted its allocation of gold for selling. As Nicholas Sarkozy was finance minister at the time of the announcement of France’s selling – and with his prospects of being the next President of France – we expect the full amount of 600 tonnes to be sold.

   So where does this all lead us?

  • If the present selling rate continues at around 10 tonnes a week for the balance of this CBGA year, then expect another 200 tonnes to be sold before 26th Sept. This leaves 400 tonnes for the next two remaining years of the Agreement, ignoring Spain. Two hundred tonnes per annum is simply no threat to the gold price, and well down on the level of the 500 tonne ceiling.
  • Should Spain sell in the same way that it has to date, then expect the Feb. to May period next year to see around 60 tonnes from Spain alone. There is no way of knowing for sure if this will be the case, however. It is even possible that these sales are terminating now.
  • If we stretch out the remaining announced sales over the remainder of the Agreement, then we will see only approximately 4 tonnes a week sold until the Agreement runs out in Sept. 2009.

   Whatever happens, the unavoidable conclusion we reach is that European central bank gold sales will not continue to hold the price back for much longer. The signatories involved must have that in mind. For gold to continue as an accepted Reserve Asset in their vaults, they would be wise to sell in such a manner as to lower the likelihood of price spikes in the market, thus bringing back confidence to gold as a monetary metal – just as it once was.

   If this is not the central banks' intention – but sales are to continue at these high levels – then it is possible we will see no further central bank sales from the CBGA signatories beyond this time next year.

   Oh, we have not even mentioned the purchase of gold by central banks such as Greece – for re-sale as coins – and non-signatory banks outside the CBGA.

   Please visit for the entire report...

JULIAN PHILLIPS – one half of the highly respected team at – began his career in the financial markets back in 1970, when he left the British Army after serving as an Officer in the Light Infantry in Malaya, Mauritius, and Belfast.

First he worked in Timber Management and then joined the London Stock Exchange, qualifying as a member and specializing from the beginning in currencies, gold and the "Dollar Premium". On moving to South Africa, Julian was appointed a macro-economist for the Electricity Supply Commission – guiding currency decisions on the multi-billion foreign Loan Portfolio – before joining Chase Manhattan and the UK Merchant Bank, Hill Samuel, in Johannesburg.

There he specialized in gold, before moving to Capetown, where he established the Fund Management department of the Board of Executors. Julian returned to the "Gold World" over two years ago, contributing his exceptional experience and insights to Global Watch: The Gold Forecaster.

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 Forecaster/Julian D.W. Phillips have based this document on information obtained from sources they believe to be reliable but which it has not independently verified; they 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 Forecaster/Julian D.W. Phillips only and are subject to change without notice. They 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, they 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.

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