Note: This excludes the tonnage sold by Germany for coin.

Latest sales under the C.B.G.A

In the week ended the 8^th September, sales of gold by two signatories of the Central Bank Gold Agreement amounted to 7.25 tonnes of gold. 

This is much higher than we have seen for the lest few weeks/months, which have been around 2 tonnes or below, which is nowhere near enough to reach the ‘ceiling’ for the year. To do so they would have to have sold around 60 tones each week. This step up in sales is not so heavy when you consider that this is what Switzerland sold each week under the last agreement.

Some analysts have reported that up to 370 tonnes of gold have been sold under the present agreement this year, but the figures reported by the E.C.B. just do not support this as you can see from the above. Nor do the figures reported by the World Gold Council support this. As you can see above the sales to date, IF we include the tonnage sold by Germany for coins at 26 tonnes equates to around 330 tonnes [these are approximate as the tonnage sold is reported in the €.] So the shortfall is around 34% from the ‘ceiling’.

Will these Central Banks sell +170 tonne, in the next 10 days?

A most frustrating fact about Central Banks is that they are bureaucracies, so the concept of sharp, 'finger-on-the-pulse' dealing is just not the way they work. The senior people make the decision, and then send it down the line to the dealing department, accompanied by a rough schedule. The dealing staff then acts irrespective of the price when implementing these instructions. It would take an instruction from upstairs to change that. 

Upstairs, would retreat very sharply from any accusation that they were managing the price on a day-to-day basis. The dealing room would not hold off selling so that they could knock the price with a big lump sale, nor would they hold off to sell into rising prices. Examples of that are, Switzerland who persistently sold 7-8 tonnes a week until they completed the entire sell order or France that was following the same pattern, then mysteriously [no doubt after an instruction from upstairs] stopped selling. The E.C.B. sells its quota over a period of 1 to 2 months then ceases for the entire balance of that year, when the next allocation s due for sale. Therefore the concept that 160 to 195 tonnes of gold would suddenly be dropped onto the market is just out of character and would bring a huge howl of protest from across the globe. If there is to be a pick-up in sales, it would come at the beginning of the new C.B.G.A. year, after 27th September, when the new schedule go downstairs.

Hence the rumors of Central Bank massive sales are just that, rumors!

We believe the fall against seasonal rise in demand is due almost entirely to the funds believing that gold is tracking oil and acting on that with as much aggression as they can. This has been effective. This leaves the funds either short or moving to very low long levels. Should demand push prices back up, we have no doubt that the funds will reverse their stance and take the price back up. 

The gold price has demonstrated that it is driven by forces outside the pure jewelry and industrial aspect of the gold market, with the commodity aspect acting effectively only when Investors are sidelined. Investment forces are greater than underlying commodity market features. 

We believe this is a set of moves commensurate with the evolution of the gold market and expect great volatility from now on, prompted by macro-economic and currency [plus oil] events.

© 2006 Julian D. W. Phillips
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