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Julian  D. W. Phillips

Julian D. W. Phillips

Global Watch: The Gold Forecaster covers the global gold market. It specializes in Central Bank Sales and details, the Indian Bullion market [supported by a…

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French Gold Sales Have Stopped!

Since a clearly unhappy President of the Banque de France, the French Central Bank, announced it would be selling around 500 tonnes of gold over the next 5 years, we have seen only these sales of gold from France:
- September - 0.6 of a tonne.
- October - 7.5 tonnes.
- November - 23.2 tonnes
- Nothing since then!

The 2004 Central Bank Gold Agreement was established in the early part of 2004, but only came into effect from September the 26th, when the preceding agreement, "The Washington Agreement came to an end. The 2004 C.B.G.A. set as a "ceiling" annual sales of 500 tonnes of gold, up from 400 tonnes under the previous agreement.
In the last quarter of 2004 the level of their sales rose, as Switzerland. Sweden, Austria and France sold gold. Many thought that this flow would continue, but seemingly not. Switzerland has / is completing the sale of its long-term program of 1300 tonnes. But most surprisingly France, who announced possible sales of as much as 500 tonnes, has ceased selling!

Notes: The years are calendar years, not the years from Sept-Sept, of the agreements.

The figures above confirm the speculation we put forward in our pages of "Global Watch - The Gold Forecaster" [in which we constantly monitor the Central Bank Gold agreement and keep our Subscribers informed of the latest developments] that the gold sales would stop on his departure, which they have. France's behavior on the matter of its gold sales and the pattern set above appears to contradict the sales intentions?

Indeed, the question now comes to the fore, will France sell any more of its gold under this agreement?

Last year total net official sales were 497tonnes (down from 617tonnes in 2003) but of this non-signatories to the Central Bank Gold Agreement were responsible for 169 tonnes. Total 'Official' purchases of gold were 67tonnes. In the autumn of 2004 an announcement was made that the French Central Bank was, after all, going to sell from 500 to 600 tonnes of gold over the next 5 years. The Banque de France and the French Finance Ministry issued the statement jointly.

Previously, the Bank of France governor, Christian Noyer, said proceeds of any gold sales would be invested in interest-bearing instruments and only the profits would be used for the state budget.

Monsieur Noyer had originally expressed his unhappiness at the sales, which were originally proposed by a government Minister and not the Central Bank itself. He likened the suggestion of funding the research by selling the gold, to "selling the family jewels".

With the poor performance of France in abiding by its E.U. commitments, the French had to do something about its public deficits, even if it was a token gesture. So the seemingly grand gesture of selling some gold to make the gesture to this cause was found to be a convenient political expedient. The tiny contribution this would have made, to fill the gaping wound of the French deficits, made the reality of these sales and their purpose, underwhelmingly inadequate.

Previously M. Noyer said: -
"The central bank will wait until gold prices are "appropriate" before agreeing the sale. In addition, he added, "The bank will certainly take into account the price. If we feel the timing is not appropriate, then we will wait." With the sales beginning shortly after this and climbing one would have thought they would by now have been the main source of "Official" supply, but they stopped abruptly, just before the gold price surged in the last days of 2004.

So when will the sales take place and at what price, if at all?

Change of Political climate.
Maybe the French government has already rescinded this decision, or permitted the Central Bank to do so? Since the decision was made the political climate has changed with the departure of the 7th Finance Minister, since the present government was formed in France. Now we await the words of the 9th Finance Minister M. Thierry. With the departure of Minister Sarkosky, the pressure on the Banque de France to sell gold left with him.

The Central Bank Gold Agreement: - reasons?
In 1999 the market price of gold was constantly overshadowed by the threats of unlimited sales of "Official" gold from the vaults of the worlds Central Banks. The holders of this gold wanted to clarify the position for the gold market so that these rumors could be dispelled. The agreement wanted to bring some clarity, some transparency to European Central Bank dealings [although given the tacit support of the U.S.A., Japan and the B.I.S.]. The agreement allowed the market to get a measure of the sales ALREADY ARRANGED! These were to be conducted at a maximum of 400 tonnes a year for five years.

This allowed the market to reassess the Central Bank's position on gold, accept there were now limits on gold sales and allowed the gold price to slowly recover. By the time of the second agreement last year, the market had lost their fear of these sales.

Realities
The new agreement differed from the first, in that the arranged sales had, or were in the process still of being completed, and no other ones had been officially announced. Hence, the new agreement set a ceiling on future sales, without specifying whom would, or how much would, in fact, be sold. The confirmations of sales started to come, as did a heightened expectation that more would follow, but they were slow in coming.

Of the major holders of gold in their reserves, France, Italy Germany and Switzerland make up the bulk. On top of that they are the nations that dominate and lead Europe. Their position on gold was and is likely to be followed by other nations. Hence, it was critical to ongoing sales that these four should continue to sell.

  • But Switzerland announced that once it had completed their sales of 1300 tonnes they would sell no more.

  • Germany announced that it would sell 600 tonnes [+ 20% of their reserves of gold], but then backed off when push came to shove, postponing their sales until after the first year of the agreement, because "gold was an effective counter to swings in the $".

  • Italy bluntly stated it would not be selling gold!

  • This left France stating, as we said above.

Thus, the four critical members of the Central Bank Gold Agreement are presently out of the picture!

This has to stumble their fellow signatories to some extent, except for those who have sold already and who have announced future sales.

We must conclude therefore, that Europe per se, is a rapidly declining seller of "Official" gold.

The U.S.A. has made their feelings known as being against I.M.F. sales too. So who of the big gold holders wants to sell their gold?

Those left who want to sell gold could find themselves, very alone. With the prospects for the $ looking so poor, such sales also smack of incompetence. This calls for a look at the transparency intended in the first and we presume, the second agreement.

Where is the Transparency intended in these agreements?

  • Right now there is silence, on the matter of buying gold for reserves, by Central Banks [we presume mainly for fear of sending the price of gold skyrocketing].
  • There is silence on the matter of selling gold before the event [Possibly for fear of sending the gold price down on the news].
  • There is silence on the actual proposed dates of the sales of gold [for the same reason].
  • There is a lack of clarity on the intentions of the Central Banks on why they are selling gold and if they really will continue to sell gold [Apart from the unprofessional statement that it is to get a return on the paper currencies they will replace the gold with]. This contradicts one of the underlying reasons for the agreement, that of Transparency in Central Bank Gold sales.

This agreement now appears to be suffering from a hormone deficiency.

The 2004 Central Bank Gold Agreement - details: -
The 2004 Central Bank Gold Agreement [which began on the 27th of September] 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 2,500 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.

This agreement will be reviewed after five years.

The signatories to the Agreement are: -

The European Central Bank

Banca d'Italia

Banco de España

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

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