Gold isn't profitable anymore, Spanish economy minister says

6p ET Saturday, June 9, 2007

Dear Friend of GATA and Gold:

Thanks so much to the friend who provided an English translation of the article from the Spanish Internet newspaper Libertad Digital, which was dispatched to you yesterday. The translation is appended.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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From Libertad Digital, Madrid
Friday, June 8, 2007

http://www.libertaddigital.com/noticias/noticia_1276307283.html

SOLBES SAYS GOLD IS NO LONGER PROFITABLE

Bank of Spain once again sells important amounts of gold in May

The Bank of Spain's gold reserves continue to dwindle. Not only did it manage to sell 20 percent of its reserves in only two months (March and April), it continued fast-paced sales in May: 28 tons.

Economy Minister Pedro Solbes claims the sales are for making the reserves profitable, but analysts foresee further rises in gold, the price of which could reach $2,000. (It currently trades at $661.50).

The Bank of Spain sold 28 tons of gold in May, as revealed by the latest Reserve Assets Report, in addition to the 80 tons sold in the months of March and April. Thus, in three months the Bank of Spain has parted with 25 percent of its gold assets.

Last Wednesday, Partido Popular Sen. Javier Sánchez Simón queried Economy Minister Pedro Solbes regarding the regulatory body's reasons for the March and April gold sales. Solbes' response was that "the intention with selling gold, an unprofitable asset, is to convert it to fixed-income bonds, which are profitable." Solbes added, "Based on this legal framework, the Bank of Spain has carried out a strengthening process of its equity situation, attempting to improve the profitability of its assets."

"Gold is no longer profitable," Solbes categorically stated.

The sales have continued in May.

... Gold could reach 2000 euros per ounce

Gold is a monetary asset and was in fact the foundation of national currencies, together with silver, until the central banks started decoupling the currencies from the metals. Nevertheless, gold still has a great deal of importance, as shown in 1980; at that time it managed to trade close to $860, which would equal about $2,000 in 2006 dollars.

Several experts believe that excess US dollar liquidity, the increasingly clear weakness of that currency, and inflation forecasts would lead one to think that many investors might once again seek shelter in gold. In this case, it could once again reach levels such as those seen in 1980. If that were the case, the profitability reasons would not be so clear.

A report last year issued by Credit Agricole's British bank Cheuvreux indeed pointed to the possibility of a $2,000/oz. price, given that gold serves as an "early crisis alert" and that currently "there is a 700-ton deficit of supply versus demand." The report believes that actual central bank reserves could be around 10,000 to 15,000 tons less than the 31,000 acknowledged that year.

There are several analysts who observe an agreed and coordinated behavior by central banks to sell gold, to prevent its price from rising too much and acting as a warning of a potential financial crisis.

Such is the position of the Gold Anti-Trust Action Committee (GATA) and analysts such as John Embry. However, these ideas are not universally shared.

... Central bank sales

On September 26, 1999, 14 European central banks plus the European Central Bank signed the Central Bank Gold Agreement, in which they agreed to limit overall gold sales to 400 tons per year. When approaching expiry in 2004, the agreement was renewed, but with an increase of the yearly maximum sales amount from 400 to 500 tons among the 15 central banks.

Sales for 2006 reached 390 tons, but recent information indicates that the central banks may once again increase their sales levels to the 500-ton maximum.

Nevertheless, not all central banks have the same policy. Market sources point out that Russia, world's fifth-largest gold producer, bought its entire 2006 production to deposit it at the nation's central bank. In 2006 Russia's gold and currency reserves increased by $121.5 billion dollars, a 66.7 percent year-on-year increase.

That could also be the case for China, although the country's opacity prevents knowing with certainty.

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