Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold, Silver & HUI Stocks Big Pictures - 28th Sep 20
It’s Time to Dump Argentina’s Peso - 28th Sep 20
Gold Stocks Seasonal Plunge - 28th Sep 20
Why Did Precious Metals Get Clobbered Last Week? - 28th Sep 20
Is The Stock Market Dow Transportation Index Setting up a Topping Pattern? - 28th Sep 20
Gold Price Setting Up Just Like Before COVID-19 Breakdown – Get Ready! - 27th Sep 20
UK Coronavirus 2nd Wave SuperMarkets Panic Buying 2.0 Toilet Paper , Hand Sanitisers, Wipes... - 27th Sep 20
Gold, Dollar and Rates: A Correlated Story - 27th Sep 20
WARNING RTX 3080 AIB FLAWED Card's, Cheap Capacitor Arrays Prone to Failing Under Load! - 27th Sep 20
Boris Johnson Hits Coronavirus Panic Button Again, UK Accelerting Covid-19 Second Wave - 25th Sep 20
Precious Metals Trading Range Doing It’s Job to Confound Bulls and Bears Alike - 25th Sep 20
Gold and Silver Are Still Locked and Loaded… Don't be Out of Ammo - 25th Sep 20
Throwing the golden baby out with the covid bath water - Gold Wins - 25th Sep 20
A Look at the Perilous Psychology of Financial Market Bubbles - 25th Sep 20
Corona Strikes Back In Europe. Will It Boost Gold? - 25th Sep 20
How to Boost the Value of Your Home - 25th Sep 20
Key Time For Stock Markets: Bears Step Up or V-Shaped Bounce - 24th Sep 20
Five ways to recover the day after a good workout - 24th Sep 20
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Central Banks Gold Reserve Actions Key to Gold Price Trend

Commodities / Gold & Silver Dec 06, 2008 - 03:22 AM GMT

By: Julian_DW_Phillips

Commodities Best Financial Markets Analysis ArticleFrom 1980 right through to 1999, the gold market had the possibility of enormous central bank gold sales hanging over the gold market.   Central banks did nothing to remove this impression but led the market to believe that it was likely.   Their purpose was to ensure gold did not challenge the paper money markets.   In 1971, President Nixon had cut the link between gold and money but removed the ability of U.S. $ holders to change their dollars into gold.   This left the $ and all other currencies without any backing except the promise from central banks to change paper dollars into paper dollars.   This would not have worked nearly so well had the U.S. not had the power to ensure that the oil market was bound to use only U.S. dollars as payment for oil.


This entrenched the $ as the global world currency for the world ran on oil.   The process was assisted by the policy of central banks leasing gold to gold mining companies.   They then sold it to the gold market as far forward as they could to maximize the proceeds in a falling market.   This accelerated the supply of gold to the market and saturated it.   Will this happen again?   No, there is not a chance of this happening now, as the last 18 months of systemic failures in the credit markets has cast doubts upon the monetary system to weather the storms it faces.   Gold, on the other hand, has a very long history of weathering such storms.

While central banks did sell gold, the quantities were not large enough to diminish its role as an important reserve asset, a point emphasized in the 1999 “Washington Agreement” wherein European central banks agreed to limit their sales to 400 tonnes a year for five years.   This reassured the gold market that it would be threatened no more by unlimited sales from central banks as the Japanese and U.S. central banks gave their tacit support to the agreement.  The next generations of money managers have never thought of gold as money and still don't to this day. From 1980 until 1999, gold fell slowly from $850 down to $275, sidelining as money.   Once central banks promised to limit sales, the gold price turned around and has steadily risen since then until now.   But from now on, will we see vast amounts of central bank gold swamp the market or will they see the value of gold in their reserves and keep a firm grip on it?

A second central bank gold selling agreement was made for the next five years in 2004, called the “Central Bank Gold Agreement”.    We have now begun the final year of that agreement.   Take a look at the Table below to see what the signatories have sold so far and what left to sell in until the 26th of September 2009.  

The Table shows that the amount of gold that they announced would sell has almost run out.   Of course they have the right under the agreement to announce more sales in the future, or to announce their sales after the event.   However, the agreement had as a prime objective to keep central bank sales transparent, so as not to alarm the market.   While they still don't want gold to compete with paper money, they want gold to be an effective reserve asset.   They have kept to this over the last 9 years [except for Belgium and Spain].   A closer look at what's left to sell presents a remarkable picture, one that has not been factored into the gold price, yet.  

If all the announced sales were made the final year of the Agreement, the market would see sales of 320 tonnes from the signatories, nearly 200 tonnes lower than the ‘ceiling' of 500 tonnes permitted under the Agreement.   But so far, the sales have been taking place at the rate of 2.5 tonnes a week.   At that rate, Central Bank selling of gold will only reach 130 tonnes in this, the final year of the Central Bank Gold Agreement.   But let's look even closer at who are the likely and unlikely sellers despite the announcements they made.

  • Austria stopped selling in the third year of the Agreement, so their residue of 52.6 tonnes of announced sales is unlikely to come to the market.
  • Portugal stopped selling in the third year of the agreement, so the residue of their announced sales of 100.3 tonnes is unlikely to come to the market.
  • Switzerland has stated it will no longer be a seller having completed its sales.
  • Without a further announcement, the E.C.B. has completed its sales of 235 tonnes .
  • Germany has stated it is not a seller of gold [appreciating that it is a counter to the swings in the $] in this agreement.
  • Spain and Belgium never made any announcements as to what they would sell, but we note that they sold none in the last year [4th] of the agreement.
  • The Central Bank of Italy has said it has no plans to sell gold, but the Finance Ministry of Italy is now debating the matter.   We think this is political rhetoric at the moment and do not expect any sales to be forthcoming [see below].
  • This leaves Sweden still to sell 13 tonnes of its announced sales.
  • This leave The Netherlands 9 tonnes still to sell.
  • Finally, France had 121.1 tonnes still to sell at the beginning of this final year of the agreement.  

Central Bank Sales As of November 2008

Notes to table: -

  1. This now includes the unannounced sales for both years from Spain & Belgium, which totaled 177.1 tonnes for the two years.
  2. We have excluded the unannounced sales from the totals as to retain accurate levels of decline in announced sales.
  3. Germany's sales were for coins, which we do not regard as part of the announced sales for the purposes of this situation.
  4. The remaining sales for individual countries will be corrected once the three monthly figures are available.  The total is the most accurate figure, but will then be adjusted too.
  5. Switzerland 's additional 250 tonnes to be sold has been included.
  6. We have now included Russia's purchases for last year.

So the total of active sellers among the signatories is only 143.1 tonnes of which 25 tonnes has been reported as sold since the 26th of September 2008.   This is in line with the present selling rate of the gold.   The market expected to see 500 tonnes this year, up until the 26th of September 2009, so expect it to be disappointed to the extent of 350 tonnes.

It is very clear now that Central Bank gold sales, excepting any further announcements of sales, will not be a significant factor in the gold market until the 26th of September 2009.  

The only other possible source of gold sales will be the 400 tonnes the I.M.F. wants to sell.   But this can only happen if the U.S. Congress agrees to the sale.   Since it was discussed earlier this year, there has been only silence on the matter.   If it were given the OK, the way of selling could take many forms including auctions and an outright sale to selected buyers [as happened in previous I.M.F. sales], which would not affect the gold price, except that the buyer could well be another Asian central bank who could take it all.   This would be positive for the gold market.

Italy to sell?

Italy, it seems, has not escaped the political interference [imagine if politicians ran central banks] that has affected gold sales in Germany, France and Switzerland.   The Italian parliament will consider a plan to use the Bank of Italy gold reserves to lift the country's economy, according to the parliament's finance committee chairman.   These currently stand at 2,451.8 tonnes or 67% of its reserves.   [U.S. gold reserves form 77.3% of their reserves – but the U.S. can print cash]  

It is reported that Finance Minister Giulio Tremonti is considering a plan to cut Italy's huge debt and finance infrastructure projects.   This amounts to $65 billion of value if the entire amount were sold.   Previous attempts by European Union governments to use proceeds from central-bank reserve sales to support political goals have been met with resistance.   We have little doubt that the same will happen with this plan.   Of course, if Italy wanted to sell its gold for the purpose described in the announcement, they would do best to sell it direcly to China at one market related price.   But the present reality is that this is a political ploy to gauge public opinion prior to a commitment being made in either case.

After all, $65 billion is just over the amount to bailout a couple of major banks, but not enough to resuscitate an ailing Italian economy.   Once spent, the reserves are gone and the nation would have no credible backing to its economy going forward.

So we doubt at this stage whether this ‘plan' will come to fruition.

Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com

By Julian D. W. Phillips
Gold-Authentic Money

Copyright 2008 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

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Chris
06 Dec 08, 23:21
agreement

I anm sure the gold price is being suppressed and manipulated too.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules