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The 2004 Central Bank Gold Agreement - Part 1

Who will sell?

The obvious question!

As you can see in the details of the new Central Bank Gold Agreement below [at the end of the article] new gold sales emmanating from the 15 signatory banks have been set a ceiling of 500 tonnes a year, much in line with market expectations. This is evidenced by the market's reaction of a small rise in the gold price over $400.

However, let's not take our eyes off the ball here. This statement sets a ceiling to sales, it does not initiate sales. Many are jumping to the conclusion that the signatories have already arranged new sales for next 5 years. With no details of these forthcoming, we look at where such sales could come from in the first part of this series, on the 2004 Central Bank Gold Agreement. Indeed we ask the question, are they going to happen at all?

Current situation

Residual Sales

The sales decided prior to the signing of the Sept 1999 agreement have in the main been completed.

1. The table shows sales reported to date and announced sales to come.
2. Total sales in year 5 can only be 385 tonnes since there is an absolute limitof 2,000 tonnes over the period.
3. Each WAG year runs from the end of September to the end of the following September.

The Germans sold 12 tonnes for the minting of a commemorative DM gold coin in 2001 and 11 tonnes for a commemorative euro coin in 2002 in addition to the 6 tonnes sold for the UNESCO coin in 2003.

Switzerland's Position [1,666 tonnes] The Swiss National Bank decided prior to September 1999 to sell a total of 1,300 tonnes. After September 2004, 130 tonnes of gold will remain of these sales to be disposed of at around 6 - 8 tonnes a week. We expect these sales to be completed in the first quarter of 2005. The Swiss National Bank said it had no plans to sell beyond 130 tonnes already planned. In view of the popular dispute over the handling of the proceeds, it is unlikely that further sales will be made by Switzerland after the completion of these sales.

Holland's Position [801 tonnes] The Dutch central bank still have up to 65 tonnes of gold still to sell after September 2004. The Dutch central bank arranged the sale of 300 tons of gold, prior to the signing of the Agreement [pre-1999] and have sold only 235 tons so far. No future sales other than these have been announced. It is important to accept that until such announcements are made, it would be incorrect to assume that there will be additional sales.

The above two nations will account for 301 tonnes of gold sales to be sold from September 2004 to September 2005. It is assumed that Germany will sell around 6.2 tonnes of gold this year as a continuation of the minting of a series of 100 Euro Coins, began last year. No other sales have yet been announced for post September 2004. [We understand that the quotas allotted to those sellers, are not transferable, i.e. if the Swiss decide not to sell 130 tonnes in the next five years, then no other institution can sell the remaining amount.]

Future possible sales.

We now review the position of each of the signatories to the agreement [plus the U.K.] and their attitudes towards and potential sales of their gold reserves: -

Austria's position [318 tonnes - 31.9% of reserves]

Austria has completed its planned sales of 90 tonnes under the Washington Agreement and has made no statement on future intended sales. There is no evidence to suggest that plans have been made for further sales. Sales potential: Nil

The position of the U.K.

The U.K government said it hadn't signed up to the agreement and that that it won't immediately sell any more of its reserves. Sales potential: Nil

The position of Greece [107 tonnes - 22.6% of reserves]

Prior to joining the European Union, Greece sold off its excess gold. This amount was seen as being sold in preparation for joining the E.U. suggesting that no sales of significance would take place thereafter. Sales potential: Nil

The positions of Belgium, Sweden, Finland, Ireland and Luxembourg [all below 23.7% of reserves] - With their gold reserves close to the E.C.B. level of 15% of total reserves, we do not expect to see sales, except in token amounts, at best. Sales potential: Nil

Potential Sellers.

The position of Portugal [517 tonnes - 52% of reserves]

Whilst Portugal sold some 90 tonnes last year, the head of the Portuguese Central Bank indicated he would welcome the opportunity to sell more of Portugal's gold should the Central Bank Gold Agreement be renewed. We therefore assume that Portugal would seek to be in line with the level of reserves indicated as preferable by the E.C.B. at 15% of reserves. This would permit it to sell up to 369 tonnes from its reserves.

Germany's position [3,440 tonnes - 46.6% of reserves] - Herr Welteke President of the German Bundesbank, announced that a request for an option for Germany to sell 600 tonnes of gold in the next five years was made to the signatories of the 2004 agreement. These sales cannot take place until Germany's laws have been changed to allow such sales to take place. The German Chancellor, Schroeder, made a statement to the effect that he would not see that as an obstacle. We do expect the change in law to allow the sales of 600 tonnes to be approved, should it be introduced, at some time in the future. No news to the effect that it has begun its passage to law has been announced, yet.

This additional statement was made by the Bundesbank, when the request for this option was made, "The decision is not to be taken now whether, and to what extent, use will be made of this option".

We believe that there is a great deal more to this story than we are being told. Indeed we have arrived at certain conclusions that cast an entirely different light on this agreement, which will be explored in a subsequent article in this series [published in "Gold-Authentic Money" - subscribe]. Sales Potential: - 600 tones.

France's position. [3,025 tonnes - 56.6% of reserves] - There is talk in the market place that France wishes to sell. Since the days when Charles de Gaulle sold the $ in France's reserves for gold from the U.S.A. France has been known as possibly the most pro-gold nation in the world. Refusing to lend or lease its gold, its grip on these reserves has been tight. There has been not one word from France on this subject, despite its ability to sell around 2,225 tonnes of gold from its reserves to lower them to the E.C.B.'s desired level of 15%. Yes, it is possible that these sales take place, but it would come as a shock to the market and send the gold price plummeting, thus affecting the value of its remaining reserves. We at Gold-Authentic Money, think that France would be the last one to sell its gold. Seen in the light of Germany's statements that it wants the option to sell 600 tonnes of gold from their potential of 2,332 tonnes we would see France unwilling to sell a higher percentage. Indeed we would be surprised if they wanted to sell even 600 tonnes. Sales potential: - 2,225 tones.

The position of Italy. [2,452 tonnes 48.6% of reserves] - Again, there is talk in the market place that the Italian wish to sell gold from reserves, however, their silence has been deafening on the matter. A jewellery producing nation long known for its love of gold, it seems unlikely that they would change their stance on gold at this late stage. However, it has to be considered. To that end, to bring gold reserves down to 15% of total reserves would release around 1700 tonnes of gold onto the market. However, we would again see them as less willing sellers than Germany and remain unwilling sellers, even of 600 tonnes. Sales potential: - 1,700 tonnes


 • In theory, the total potential sales from the 15 signatories of the 2004 Central Bank Gold Agreement amounts to 4,894 tonnes.

 • In practice and bearing in mind the above, we would see Germany and Portugal being the most likely sellers of around 969 tonnes.

 • With the unlikely addition of around 1,000 tonnes from Italy and France, added to this total, combined potential sales would be just under 4 years worth of gold, as per the 2004 Central Bank Gold Agreement.

 • In reality, we would believe that should France and Italy announce sales of gold from their reserves it would have an extremely negative emotional impact on the market and could well precipitate a similar mood to the one the "Washington Agreement" sought to stem in 1999.

 • With the 307 residual sales still to come plus the 969 potential sales, the most likely supply to the market expected would be 1,276 tonnes or just over two and a half years worth of supply.

In the event that only part of these sales materialise [Portugal has still to announce its intentions of selling further and Germany still has to change its nations laws to permit such sales] the market will be held in line, by expectations of sales. This will not be sufficient to have a restraining effect on the market for long.

In the next part of this series of articles, to be published in "Gold-Authentic Money" in future issues, we will explore the "HIDDEN AGENDAS" we see behind the Agreement and how they plan to control the price.

In addition future articles will take a global look at potential sales or NOT, of gold.

The 2004 Central Bank Gold Agreement - details: -

The 2004 Central Bank Gold Agreement [set to begin on the 27th of September, as announced on the 8th of March] is as follows: -

In the interest of clarifying their intentions with respect to their gold holdings, the undersigned institutions make the following statement:

1. Gold will remain an important element of global monetary reserves.

2. The gold sales already decided and to be decided by the undersigned institutions will be achieved through a concerted programme of sales over a period of five years, starting on 27 September 2004, just after the end of the previous agreement. Annual sales will not exceed 500 tons and total sales over this period will not exceed ,500 tons.

3. Over this period, the signatories to this agreement have agreed that the total amount of their gold leasings and the total amount of their use of gold futures and options will not exceed the amounts prevailing at the date of the signature of the previous agreement. Gold will remain an important element of global monetary reserves.

4. The gold sales already decided and to be decided by the undersigned institutions will be achieved through a concerted programme of sales over a period of five years, starting on 27 September 2004, just after the end of the previous agreement. Annual sales will not exceed 500 tons and total sales over this period will not exceed 2,500 tons.

5. Over this period, the signatories to this agreement have agreed that the total amount of their gold leasings and the total amount of their use of gold futures and options will not exceed the amounts prevailing at the date of the signature of the previous agreement.

This agreement will be reviewed after five years.

The signatories to the Agreement will be: -

The European Central Bank Banca d'Italia Banco de Espana
Banco de Portugal Bank of Greece Banque Centrale du Luxembourg
Banque de France Banque Nationale de Belgique
Central Bank & Financial Services Authority of Ireland De Nederlandsche Bank
Deutsche Bundesbank Oesterreichische Nationalbank Suomen Pankki
Schweizerische Nationalbank Sveriges Riksbank

[With 10 new Members in May of this year, we wait with interest to see if they add their names to this agreement.]

Please note that the Bank of England is no longer a signatory The Bank of Greece, a new Member of the "Common Market" [E.U.] is now a signatory, leaving the total at 15 signatories.

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Authors: Tony Henfrey & Julian D.W. Phillips

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