Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Aborted Plan to Sell Italian Gold

Commodities / Gold & Silver Aug 11, 2007 - 05:36 PM GMT

By: Julian_DW_Phillips

Commodities Sales of gold by European Central Banks are primarily for the adjustment of national reserves in terms of structure or size. They are not intended under the rules of the European Union, intended to pay the bills of the governments of Europe, so when the subject came up, after a consistent record of the Bank of Italy's refusal to even contemplate the sale of the country's gold reserves, everyone was surprised. The reality was suddenly the government of Italy wanted to put their hand into the country's coffers in an exercise that would never have solved the country's debt problems. 


The Italian parliament approved a reserve plan allowing the government to look into using the Bank of Italy's substantial gold reserves to cut the country's huge debt. Italy has some 62% of its foreign exchange reserves value in gold at about 2,452 tonnes. The resolution inserted into Italy's next budget committed the government to: 

Undertake, also in its relations with the European Union, a survey of all instruments useful to producing a significant reduction of the national debt, through agreed ways of using the reserves of the central banks, in gold and currency, in excess of that required by the agreement with the E.C.B. for the defense of the Euro .” The wording suggested that Italy's government would try to re-think at EU level the existing limitations on the use of the gold and currency reserves of Europe's central banks. This was bound to ruffle the feathers of the European Central Bank!

The government plan aimed to cut Italy's debt to 103.2% of gross domestic product (GDP) in 2008 from 105.1% of G.D.P. this year, about €27 billion ($36.9 billion), using the central bank's gold and foreign exchange reserves. If Italy were to sell 1740 tonnes of its gold it would have achieved this target. However it would have taken four years to do this under the ‘ceiling' limitation of 500 tonnes [if the C.B.G.A. is extended again under the same terms] provided Italy was the only seller, during which time we have no doubt the Italian's debt would have risen past the present level]. This achievement undoubtedly would have been swamped by the underlying problems in the Italian economy within a smaller period of time. Italy's debt is the world's third highest in absolute terms. This plan was unlikely to change that.

Was this plan reasonable? Not at all. Italy has had a very long record of poor management of its currency management in common with other European countries. One of the saving graces of the country with such a record is that it had the wisdom to hold large gold reserves in case the record continued, with gold always there to bail them out of the mess. The Italians could have undertaken sales of gold after Budget day 2008, once the Italian government had approved their next year's budget. There was room though for gold sales, under the present agreement, for around 370 tonnes in the last two years of the agreement, which runs through until September 26 th 2009, but no more . This would have made the exercise pointless. 

It appears old fashioned now to think that national spending behavior should be limited to stop the bleeding, then repayment of debt undertaken, from new income. In high debt situations the sight of gold reserves to politicians in Europe [except in Germany] seems impossible to resist. Add to that a complete lack of understanding of gold as savings for a rainy day and you get another repeat of governments grabbing the piggy bank.

Gold ingotsWisely, the Bank of Italy kept silent. Because the plan crossed the lines of the Maastricht Treaty and impinged on European Central Bank territory, it was up to the European Central Bank to put the Italian government in its place. Italy's approach was not solely an attack on gold reserves, but an attempt to adjust the policies of the Eurozone and interference in the activities of the European Central Bank. 

The European Commission, was sharp in its response on the use of the Bank of Italy's gold reserves to lower the country's debt, saying, “ It is up to the E.C.B. to decide about the foreign reserves [including gold reserves] of the € area member states, in full independence .”

Did we detect more than just a re-establishment of the order of financial seniority here? We would hope so in the days when the composition of reserves is becoming a sensitive issue, with the importance of gold in extreme times rising through the levels of priorities in the face of a weakening $ and shaky credit?

The matter is now put to rest, leaving a substantial shortfall in the ‘ceiling' of gold sales for the entire Central Bank Gold Agreement [2,500 tonnes] and the balance of announced gold sales to date short of that by around 400 to 500 tonnes. 

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

© 2005-2022 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