LONDON (Commodity Online): The World Gold Council (WGC) on Thursday said the decision to renew the Central Bank Gold Agreement (CBGA) reaffirms the importance of gold as a key element of global monetary reserves.
Commenting on the CBGA and the role of WGC in the global gold market, Aram Shishmanian, Chief Executive, WGC, said: "The announcement is a clear endorsement of gold's role in today's global economic and financial architecture and a reflection of the success of the previous Central Bank Gold Agreements.
He said the agreement to limit the sale of gold over the five year period to 2000 tonnes demonstrates that, at a time of continued market volatility and inflationary fears, gold's unique investment qualities provide the necessary hedge and protection that central banks are seeking.
The reduction in the annual ceiling on sales from 500 tonnes in the current agreement to 400 tonnes a year starting on September 27, 2009, reflects an acknowledgment of the fact that the central banks' appetite for sales is diminishing. This is evident in the way that total sales under CBGA2 look set to fall well short of the ceiling the signatories set for themselves in 2004, Shishmanian pointed out.
The decision to allow room under the agreed ceiling to incorporate the IMF's proposed sale of 403t demonstrates a willingness to help the IMF comply with the recommendations of the Crockett Report that IMF sales should represent no net addition to the quantity of gold the market is expecting from the official sector.
Gross central bank sales over the course of the first half of the year are estimated to have totalled 95 tonnes. Keeping with recent tradition, the vast majority of these sales were accounted for by signatories to the CBGA.
The biggest seller from within the CBGA group was France. The country’s central bank sold nearly 44 tonnes of its reserves over the first five months of this year, and it seems likely that further sales also took place in June. The sales were part of France’s plan to sell up to 600 tonnes under the current Agreement. By end-May this year, the central bank had sold 576 tonnes, in principal leaving the maximum amount of gold it could still sell under the current CBGA to no more than 24 tonnes.
The second largest seller from within the CBGA was the European Central Bank (ECB). On 31st March 2009, the ECB completed gold sales amounting to 35.5 tonnes. Information contained in weekly financial statements of the Eurosystem
suggests that at least part of these sales took place in the forward market.
Elsewhere, Sweden sold some six tonnes of its reserves in the first five months of this year. The country planned to sell 15 tonnes in the final CBGA year and has so far sold just over nine tonnes. Greece reported a marginal decline in its gold holdings, which is believed to have been related to the minting of coins.
Finally, weekly financial statements of the Eurosystem suggest that approximately seven tonnes were sold by the group in June. Based on its selling pattern since the beginning of the current CBGA, at least part of that quantity is believed to have been accounted for by France.
Moving to sellers outside the CBGA, the annual report of the Bank for International Settlements released at the end of June confirmed that the institution had sold five tonnes over the 12-month period ending 31st March 2009.
Purchases
GFMS currently estimate that gross purchases in the first half of 2009 reached 56 tonnes. Although almost doubling year-on-year, gross purchases were 39% lower than they had been in the second half of 2008.
Once again the bulk of the purchases were accounted for by undeclared activities, details of which cannot be given in respect of confidentiality. Nevertheless, it is worth stressing that the gross purchases figure reflects moderate rises in a number of countries’ holdings, often sourced locally, rather than any major addition to one or more central bank’s gold reserves via operations in the international market.
The balance of central bank purchases consisted of a number of small declared increases in gold reserves, amounting to one tonne or less, from a handful of countries, including Mexico, the Philippines and Belarus.
As regards China’s announcement in April this year that the country had increased its gold holdings by 75% from 600 to 1,054 tonnes since 2003, we believe such purchases would have gradually taken place over time and that there may also have been an element of transfer from non-monetary to monetary gold holdings. In any case, we see no evidence of large scale and direct purchases in the open market by this country either in 2008 or during the first few months of 2009.
