In the last couple of months a great deal of emphasis has been placed on Central Bank sales. These have been heavy and along with diminished E.T.F. purchases and even net sales, have held the gold price back. But a major point has been overlooked in these commentaries. How long can they last?

The amount of sales per year is not the sole limitation on these sales, but the announced total sales by each individual Central Bank is the defined limit. Our Table below highlights the situation entirely.

Central Bank Gold Agreement - Sales in 2006

 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 so 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.

This table has as its second column the sales that each Central Bank signatory to the Central Bank Gold Agreement announced it would sell. We are presently in the third year of this Agreement. The Agreement also includes a ‘ceiling’ of 500 tonnes per annum. The year commences on 27^th September each year.

As you can see the Agreement has been kept. So far less than 500 tonnes of gold has been sold each of these years, with the total of last year’s sales less than 400 tonnes. In this, the third year, we still have another 5 months to run beofre the year is finished, leaving two more years thereafter until the Agreement runs out. 

The tonnage remaining of the announced sales is down to 617.5 tonnes, as of the end of April this year. These sales are to last for the remaining 2 years five months of the Agreement. 

If sales continue at the rate we have seen over the last two months at around an average of 10 tonnes these sales will last just over a year before they are complete and will terminate.

However, not all the signatories have announced the sales they intended to make during the agreement. The two nations that kept quiet about their inteneded sales are Spain and Belgium. Yes, the Table gives the history of the sales from these nations and we can pick up the history of the selling that these two made in the past. 

q       A glance at these show that Belgium has not sold for the last 19 months. We have no reason to believe they have more to sell in the remaining Agreement period.

q       Spain on the other hand has sold 147.1 tonnes to date. Last year the Central Bank of Spain led us to believe that these sales were tied into the maturing of Call Options they had sold, that were now being taken up. The pattern of present sales gives us reason to believe the same is happening now. Clearly the prices at which the Central Bank of Span sold these would have been the gold prices of up to 5 years ago [$350+?], a sad sight to the Members of that Bank’s board of Directors, let alone the Spanish public. Spain has sold 54.6 tonnes since the beginning of the year, the bulk of it in March [40 tonnes]. The total sales levels for the last two complete years, indicates that we are near to the completion of this year’s sales by Spain. 

We suspected France has been a seller of note and is likely to continue to sell until it has exhausted its allocation of gold for selling. As Sarkozy was the Finance Minister at the time of the announcement of France’s selling [clearly to an unhappy Banque de France] and with his prospects of being the next President of France, we expect the full amount of 600 tonnes to be sold. 

So where does this all lead us to? 

•        If the present selling rate continues at around 10 tonnes a week for the balance of this C.B.G.A. year, then expect another 200 tonnes to be sold before the 26^th September this year. This leaves 400 tonnes for the next two remaining years of the Agreement, ignoring Spain. 200 tonnes per annum is just not a threat to the gold price and well down on the level of the 500 tonne ‘ceiling’.

•       Should Spain sell in the same way it has to date, then expect next year to see the February to May period see around 60 tonnes over the next two years from Spain alone? But there is no way of knowing if this will be the case. It is even possible that these sales are terminating now? 

•        If we stretch out the remaining announced sales over the remainder of the agreement, then we will see only approximately 4 tonnes a week sold until the agreement runs out.

•        The unavoidable conclusion we reach is that Central Bank gold sales will not continue to hold the price back for much longer. The signatories involved must have that in mind and for gold to continue as an accepted Reserve Asset in their vaults, they would be wise to sell in such a manner so as to lower the likelihood of price ‘spikes’ in the market, so bring back the confidence to gold as a monetary metal, it once had.

•        If this is not their intention but sales are to continue at these high levels then it is possible we will see no more Central Bank Sales from these signatories from this time next year onwards?

•        Oh, we have not mentioned the purchases of gold by Central Banks [Greece and non-signatory banks]?

© 2007 Julian D. W. Phillips
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