New European gold sales agreement cuts quota, includes IMF

European Central Banks Agree to Third Cap on Gold Sales

By Jana Randow
Bloomberg News
Friday, August 7, 2009

http://www.bloomberg.com/apps/news?pid=20601087&sid=axBzn3lQS1kI

FRANKFURT, Germany -- European central banks agreed to a third five-year cap on gold sales and said planned disposals by the International Monetary Fund could be done within the accord.

The European Central Bank and 18 other banks agreed to sell no more than a combined 400 metric tons of the metal a year through September 2014. That's less than the annual cap of 500 tons in the current agreement, which expires Sept. 26.

"It's positive for gold," John Reade, an analyst at UBS AG in London, said by e-mail. The agreement "removes the small chance that European central banks would have dumped gold onto the market in an unconstrained manner."

Central banks sold 73 percent less gold in the first half and full-year disposals may drop to the lowest since 1994, according to estimates from London-based researcher GFMS Ltd. The IMF wants to sell 403 tons from its reserves of 3,217 tons, the third-largest holding after the U.S. and Germany.

"The IMF has not signed and this leaves open the possibility that the Chinese, Russians, another central bank could buy the 403 tons of IMF gold in one go," Reade said.

China has the world's sixth-largest holding at 1,054 tons and Russia is ranked 10th with almost 537 tons, World Gold Council data show.

Gold for immediate delivery in London was 0.4 percent lower at $959.30 an ounce by 10:45 a.m. local time today. The metal reached $971.68 an ounce yesterday, the highest since June 5.

Gold sales haven't been approved yet by the IMF's board. The U.S. Congress passed legislation in June that permits the American representatives to the IMF to agree to the planned sale to help finance aid to poor countries.

Four hundred tons, or 12.86 million troy ounces, is equal to about a sixth of annual mine production. At this year's average spot price of $920 an ounce, 400 tons would be worth about $11.8 billion.

The Swiss National Bank, one of the signatories to the new accord, in a statement today said it isn't planning any gold sales in the near future and that its gold is an important part of monetary reserves. Switzerland has 1,040 tons of gold, making it the seventh-largest holder.

Bullion sales under the current agreement total 140 tons in the current quota year, with France and the ECB leading sales, the World Gold Council said July 29. Central banks have sold about 3,867 tons since the first agreement, and failed to reach the allowed limit each year since 2005, its data show.

"We thought it may well have been a bit lower," said Daniel Major, an analyst at RBS Global Banking & Markets in London, referring to the new 400-ton cap. "The sharp decline in sales in the current agreement means a high ceiling would have been unrealistic."

Major said he hasn't seen any evidence of central banks likely to sell large amounts any time soon.

"The agreements were introduced in the first place to give the market some stability and knowledge that central bank sales would occur in a regulated framework, instead of unexpected ad hoc sales that would be destabilizing to the gold price," Louise Street, a consultant to the World Gold Council, said today by phone.

* * *

To contribute to GATA, please visit:

http://www.gata.org/node/16