Gold News

All the gold in Spain

Spain's central bank continues to sell gold, but now with an absurd justification...

A snippet from the latest issue of the Gold Forecaster...

THE BANCO d'Espana's recent gold sales are part of a strategy, according to finance minister Pedro Solbes, to shift Spain's foreign currency reserves into more profitable fixed-income instruments.

   Anyone with a modicum of financial knowledge will gasp at the sheer ignorance of his words.

   Ignores the concept of "total returns" – the main criteria for successful investing – Senor Solbes' spokesperson quoted him as saying:

   "What we aim to do is to sell gold, an unprofitable asset, to reinvest in bonds, which are more profitable."

   Clearly, the rest of the financial markets have missed something that he has seen! After all, we consider gold to have achieved a 130% rise in price since 1999. And we call that a profit, don’t you?

   Solbes went on to say that "the objective of our reserves is to maximize their profitability." This is from a man so highly qualified that he was given the responsibility of managing Spain’s finances. Methinks he comes from the same stable as chancellor Gordon Brown of the United Kingdom – now prime minister.

   The Bank of Spain added to its recent sales of 80 tonnes of bullion with another 28 tonnes of gold sold in May. None of these sales were announced in advance, which is why we include them alongside Belgium in red in our Tables in the Gold Forecaster. Only these two central banks are selling without a formal commitment to limited and described levels of sales. So far, these sales represent 25% of Spain's total reserves now sold into the market.

   Please note: Pedro Solbes made no mention of Spain's trade deficit. Indeed, if we are to accept what the minister has said, there should be no drop in the overall levels of reserves in Spain's accounts – and no selling to cover trade shortfalls.

   All this unscheduled selling is therefore the result of a planned strategic decision made several years ago, it would seem. But this is stretching credibility, surely?

   We must also note, of course, that this was a statement from a politician, not a money-man. To us, then, this is more likely dipping into the "family jewels" to cover a debt.

   "Even during the Bank of England and Bank of Switzerland gold sales period from 1999-2004," says one report, "no three-month tally during the Washington Agreement days has been as high as 170 tonnes of sales into the market." The fact that the spot gold price has not dropped like a stone is a testament to the underlying strength in the market.

   Here at, we don’t believe that the statement by Spain's finance minister is any more than posturing for the press, a "red herring" for public consumption. His callous disregard for the ongoing value of gold in the monetary system as a reserve asset ignores the role it could have in the monetary system.

   The potential of this role is indicated in a possibly spurious article from the Philippines.

Gold operating as a monetary asset

   Not for one moment do we believe the report that "the Philippine central bank may import gold to remove excess US Dollars in the financial system and slow the Peso's appreciation," as reported by a local newspaper quoting an "unnamed central bank" source. This report also said that the central bank is also "looking at possibly selling gold from its reserves to siphon excess liquidity in an effort to decrease inflationary pressure."

   But wouldn’t that be a major step forward towards gold regaining its old role of controlling the supply of money? It is anathema to a banker to be controlled by gold in that way, but it would ensure a proper management of the printing of money. That sort of control brings accountability with it, which even central bankers don’t like and could not live with.

   The concept of buying gold to mop up excess Dollar liquidity is the same as simply exchanging trade surpluses for gold. Just as the Chinese are seeking to use their Dollars to the best effect by buying assets with them, so the concept of buying and selling gold in a similar way – albeit internally – is a movement back to gold as central money.

   Would it work in a single country in a world swamped with the Dollar, where most trade is still done in the Dollar, too?

   The major obstacle to this policy would be the present low price of gold. Yes, internally in the Philippines it should work, but the sums of money that constitute excess liquidity are huge, even in the Philippines. If this excess liquidity is taken to the gold market, the tonnage of gold it would buy at present prices would drain the market of gold and send the gold price rocketing.

   We have always maintained that gold, in a monetary role, has to be at far higher prices than even the most adventurous of forecasters would pitch. Hence, our disbelief in this report.

   If only it were true and gold were at several thousand dollars an ounce? In the next issue of the we will look at whether the Central Bank Gold Agreement signatories will or will not sell more than the sales announced to date.

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.

See full archive of Julian Phillips.

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