In the underlying principles of the Central Bank Gold Agreement lay the attitude of European Central Banks to gold. The agreements started as the Euro entered the foreign exchange markets for the first time. All Central Bank prefer paper money to gold because of the control it gives the bank over money.

Gold has a habit of undermining the credibility of paper money, as it reflects poor money management in falling values of the paper, as a result of this control. So it was almost incumbent on the European Central Banks to support the new Euro and to frown on the monetary role of gold [But not to frown on its value as a reserve asset]. This function can be supportive of a paper currency and a nation in times of crisis.

Once the Euro was established as an international and particularly European currency, there was no need to frown upon gold any more; in fact, it is clear that the secondary role of gold as a "reserve asset" should be supported.

The "Washington Agreement" was the first of the two gold sales agreements and lasted for 5 years. During that time gold recovered and looked robust, so it could be seen that the sales may have not done their work yet. But when the "Central Bank Gold Agreement" began for another 5 years, it was felt that the Euro still needed the 'support' of these sales.

Then the management of the $ became questionable regarding its role as the world's reserve currency and the position of the Euro as an alternative to the US$ came into view. During the last few years the Euro has climbed against the $ and gained a strong reputation as a global currency. It provides the means of exchange for over 400 million Europeans in their daily lives. It is designed to monetarily unite a set of diverse economies that Europe has been for well over a couple of thousand years. It has done a remarkable job to date.

So there is little need for gold sales now.

• This has always been the opinion of the Italian Central Bank [whose history with the Lira was dismal] and whose respect for gold was enormous.

• Then Germany backed off from selling its gold even in the face of battles with government ministers with little respect for gold. The Bundesbank President, Axel Weber, made no bones about it saying that gold was "a useful counter to the swings in the $". Germany has sold no gold in the open market during the second agreement, selling only 5 tonnes a year for coin production purposes.

• The Banque de France, France's Central Bank became an unwilling seller as the Governor of that bank lost the battle with the now President of France, then Finance Minister, Sarkozy.

• Switzerland, basing the value of its gold on its currency equivalent values, focuses on the proportion of gold in its reserves, so as gold's price rose they reasoned that they had too much relative to the value [$?] of their currencies. Such is the trust in paper as the Swiss have sold 1200 tonnes and then opted to sell another 250 tonnes. May they enjoy the declining $ and the dropping income from its interest rates. No doubt as time goes on they will live to regret this decision as they see the value of currencies decline much further against gold. As is typical of the Swiss, they said they would sell and they are and will do so until they have sold their commitment, but it is being done with a slack hand at the moment.

• Britain did not enter the second Central Bank Gold Agreement, primarily because it had sold half of its reserves before that second agreement began. Since then, as the price of gold has climbed to almost four times the level that Britain sold its gold at, so ridiculing the reasoning behind its sale. The price achieved by Britain is known as the "Brown Bottom" as it was the lowest price the market saw since pre-980.

• Spain was quite a seller. This appears because of the poor state of that nation's reserves and it current liabilities, not because of their desire to get rid of gold as was the impression given at the time.

• The other Central Banks also appear to be losing their enthusiasm for selling gold. With sales down to such a small level now, it seems that even the sales to be conducted, the "announced sales" may well not happen for the same reason as they are not selling now.

It is the best performing asset in their reserves? As the global economy has dark clouds forming above it, the times when gold comes into its own on an international front approach again. Now is the time to retain gold.

Hence, the total gold sales of the entire number of signatories to the Central Bank Gold Agreement have declined to a trickle of around 0 and 2 tonnes a week, which the market barely notices.

I.M.F. Gold sales
If European Central Bank selling does dwindle to a halt well before the end of the five year agreement then the role of gold in the monetary system would be well confirmed and gold's value as a retainer of value would have been re-established, which it should be. However, the Central Bank Gold Agreement would stand in tatters and would have confirmed that Central Banks wanted to keep the gold they have. This would most certainly encourage other private or institutional investors to acquire gold.

Then along came the I.M.F. this mentor of global finance with its own Balance Sheet in a mess. The gold it had 'acquired' from Brazil and Mexico, [last century] was still under the control of its board and not in the possession of a single [or pair] of nations anymore. This made it easier for the members to agree to sell it. It is important to emphasize this point: they want to sell this gold to shore up their own finances, not for any paper money support. The sales, if the U.S. Congress approves them, have no monetary or anti- gold reason behind them. They are to bail out an institution in trouble, that's all.

However, so as not to cause a ripple on the gold market waters, they have already stated that they will work under the Central Bank Gold Agreement confines. We assume they will work in the same way and under the same 'ceiling'. We understand this to mean that they, alongside any signatory sales, will not go above the 500-tonne 'ceiling'. The reality seems even less threatening than that, as they talk of the sales being conducted over several years. This means to us that they will occur at such a low level that they will not even send a ripple over the gold price itself.

We certainly don't believe that there is any collusion between the I.M.F. and the signatories of the Central Bank Gold Agreement over gold sales.

For the full report with conclusions, please subscribe to the "Gold Forecaster".