In the week ending 25th July 2008, the decrease of €578 million in gold and gold receivables reflected the sale by two Eurosystem central banks which roughly equates to the sale of just over 30.0 tonnes of gold. In the week ending the 1st of August, there was a decrease of €26 million in gold and gold receivables reflecting the sale by one Eurosystem central bank and the purchase of gold coins by another Eurosystem central bank, which roughly equates to the sale of around 1.40 tonnes of gold [consistent with the Central Bank Gold Agreement that came into effect on 27th September 2004].

This was after many weeks where only between 1 and 2.5 tonnes of gold was sold under this agreement. In the past, Greece has been a buyer of coins for its reserves. We are pretty sure that Switzerland was responsible for around 1 to 2.5 tonnes of the previous weeks' sales, prior to the week of July 21st but the balance most likely [we cannot be certain of this as this information is not yet published] came from a signatory that has not announced ahead of time how much it will sell. However, the pattern of a sudden arrival of a seller who sells without regard to the impact on the gold price is very much in line with a pattern set last year by Spain, who sold primarily to fill some of the gap in its own budget deficit. After all economy Finance Minister Pedro Solbes said in May 2007 that the central bank would sell gold to buy bonds, but so far that has not happened. The Bank last held a sale for gold in July 2007, when it sold 24.88 tonnes [0.8 million troy ounces].

While we thought it may have been Spain selling, during the week of July 21st the Bank of Spain's gold reserves were unchanged at 281.62 tonnes [9.054 million troy ounces] according to data on the central bank's website. Maybe the information still needs to be added to the website, therefore we will wait for confirmation of who made this sale when it is published.

But whoever has been selling, have they stopped selling now? Last week we only saw net sales of 1.4 tonnes, which takes us back to the previous pattern thus leading us to believe that it was Switzerland that keeps selling and will continue to do so until it has completed its sales [the residue is now well below 50 tonnes more]. As to the seller of that 30 tonnes, it appears that their selling has now stopped.

Losing appetite?
Overall, the signatories to the Central Bank Gold Agreement appear to have lost their appetite for selling gold because interest paying reserves of these Central Banks [not denominated in the €] have been paying it in a currency that has been depreciating faster than the instruments were accruing interest. Meanwhile, gold, although not paying interest, has been appreciating faster than any of these reserves, making it a more than useful 'counter to the swings in the $'.

The $ : gold relationship continues to dominate the gold price and has stayed within the $1.54 to $1.60 range for the last few months. This of course is the wish of the G-7, who no doubt exerts their own influence on the rate. Having said that, we do not believe that the signatories to this agreement are influenced by this rate, as to when and how much gold they will sell. It is a background concern of these signatories that the gold market should not be affected directly by their sales of gold and will try to sell in such a manner that will not affect the gold price. However, this sale two weeks ago undoubtedly made the gold price buckle at the knees for a while and sent it on a downward path.

Whoever sold that gold, we believe, did it for reasons other than wanting to get rid of their gold reserves. We are of the opinion that it was sold for budgetary reasons, where the country wanted to raise cash quickly. Central Banks in Europe are satisfied that the € is now an established currency so the underlying reason for selling gold has now been removed.

If there is a future Central Bank Gold Agreement - What form will it take?
We are strongly of the opinion that the European Central Banks that are signatories to the present Central Bank Gold Agreement are no longer keen to sell their reserves of gold in view of the uncertainty over the global economy, monetary system and the $. But a primary reason for entering the "Washington Agreement" then the "Central Bank Gold Agreement" was to dispel the previously held view that Central Banks were keen to get rid of all the gold they had. Once the first ["Washington Agreement"] was announced, the gold price turned upwards and the long 'bull' trend of the gold price, still underway, commenced. Such an Agreement reassures the gold market that the amounts to be sold will be handled in an orderly, manageable manner so that they will not depress the gold price. Initially, the maximum amount that could be sold under the "Washington Agreement" was 400 tonnes, but was increased to 500 tonnes under the "Central Bank Gold Agreement". It is clear that this 'ceiling will not be met either in this year of the Agreement or in the final one, ending on the 26th September 2009'.

So what 'ceiling' would a future Agreement propose? It is likely to be in the same region as the previous two Agreements because it is a 'ceiling', or maximum amounts, obviating the need for a defined sales amount. If it were 500 tonnes again, the signatories are permitted to sell only 10 tonnes if they want.

There is a possibility that the Agreement will not be renewed because it is unlikely that the European Central Banks who committed themselves to selling will continue to do so, for many have not reached the levels they said they would do. Certainly Germany, who although was given an option under the present Agreement of selling 600 tonnes, has declined to do so. Italy has made it clear that it has NO plans to sell any gold and the others have not added to the amounts they previously announced they would sell.

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.
4. The remaining sales for individual countries will be corrected once the three monthly figures are available. The total is the most accurate figure, but will be adjusted then too.
5. Switzerland's additional 250 tonnes to be sold has been included.
6. We have now included Russia's purchases for last year.

As you can see in the Table above, Portugal and Austria have not sold for over a year now, but previously intended to do so. Therefore the willingness to formulate an Agreement based on intended sales has also lost most of its punch. Any such new Agreement will only serve to reassure the market that it need not expect floods of Central Banks gold sales. This could only be 'gold-positive'.

The I.M.F., if they get the blessing of the U.S. Congress to do so, intends to sell 400 tonnes of gold in the future, but has not been able to set a time table as it is not a foregone conclusion that they will be able to sell this gold. They have made it clear that they will sell it under the auspices of the Central Bank Gold Agreement. What this means still needs to be clarified. To date the I.M.F. has been at pains to tell the world that they will not sell in such a way as to depress the gold price. Clearly they want as much currency as they can get for this gold. Certainly a direct sale to one of the surplus countries would be a clean, effective way of getting rid of it at one price for the entire amount...but wouldn't that also be considered gold positive?

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