- Global Watch
Will more Central Bank
gold sales be announced or is this all we are going to see?
Gold Forecaster snippet
Jun 18, 2007
- Below is a snippet from the
latest weekly issue from www.GoldForecaster.com
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".
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
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"
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
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
Switzerland 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
Next week, the reasoning
behind Switzerland's policy decision.
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Jun 17, 2007