Indications from authoritative sources tell us that it is unlikely that "Official" gold sales, after September 2004, will take place unless the Washington or Central Bank Gold Agreement, is renewed!

The same sources have led us to believe that the Agreement will be renewed and at possibly a higher tonnage than before, around 500 tonnes, with the sole purpose of allowing the gold price to rise in an orderly manner, for even 500 tonnes will not keep the gold price down.

This direction was indicated by the sale of 90 tonnes gold by Portugal of late, which drew relatively little attention from the media, much to our surprise. More coverage was deserved, particularly as the market is moving rapidly out of balance, at present levels, towards a shortage. The developing shortage and potentially explosive price rise has been highlighted by the continuing aggressive de-hedging process which can no longer be explained by the loss of financial incentive in hedging [low contango levels]. Yes, that would explain why hedging is not continuing, butnot the present process of de-hedging. Shareholder pressures, alongside the belief by most gold producers, that we are in a multi year "Bull" market, have, no doubt precipitated their actions, which continue vigorously at this moment.

The Washington Agreement is working well and achieving its purpose, precipitating a market situation where the gold price has to rise. It is time to understand this purpose and the effect it is about to have now and in the future.

Gold-Authentic Money has, since its inception, highlighted the role of the Washington Agreement [now referred to as the Central Bank Gold Agreement] as being far more than simply giving transparency to Central Bank present and future dealings. In reality the Agreement placed aceiling on their sales with the full intention of precipitating a turn around in the Gold price from a falling one to a rising one. Indeed, it is now becoming very clear that they wished and wish, to see anorderly rise in the price of gold, so that its "rehabilitation" as a monetary asset is credible, acceptable and we believe, necessary.

The market is now seeing confirmation of this intention. Right now, the Washington Agreement is serving toprevent "Official" supplies reaching the market,above the 400 tonnes agreed on in the Agreement. With around 280 tonnes of "Official" gold already sold in the year September 2002 to September 2003, the gold market has demonstrated a voracious appetite for gold, well in excess of the 120 tonnes remaining from "Official" supplies, coming to the market in the next 5 months.

Is the intention of the key Central Bankers towards gold an almost avuncular management of the Gold price, protecting the institutions and structures in the market? The danger is that the price will rise significantly out of their control.

It was reported by the Central Bank of Portugal that it had sold a total of 90 tonnes of Gold since later 2002.45 tonnes of gold was sold in March and April, which followed on from15 tonnes sold in late 2002, and30 tonnes sold in February, taking the total to90 tonnes in recent months. At first, some reported that these were renegade sales of gold by Portugal outside the Washington Agreement, so collapsing its credibility. However, to the contrary, it was clear thatthese were part of the arrangements made in advance of the September 1999 signing of the Agreement, and were included in the budgeted sales.

This brings home to all, that prior to the signing of the Agreement all previously arranged saleswere declared to the signatories. Based on this schedule, the figure of 400 tonnes gold sales a year was agreed and co-ordinated. Tacit agreement was indicated by the B.I.S. and the Federal Reserve, thus accounting for all the key Central Banks, world wide.No further sales were to take place other than these sales, during the next five years, after which a review of the situation would take place!

No doubt such a review would be to make any adjustments necessary to see that its purpose was achieved and would continue!

The assumption by some that this level of new sales was determined only at the W.A. was, therefore, wrong. Nonew sales were formulated. It is vital, in order to understand this Agreement that this agreementcurbed further sales.When looking forward to the next Agreement it is important to appreciate this underlying principle.

The current situation regarding "Official" gold sales, taking into account the33tonnessold by the Dutch, and the intention of the Swiss to sell a total of283t [120 tonnes remaining] this year (Sept-Sept),the full quota of 400tonnes per annum is now, publicly, fully accounted for!

The Portuguese sales are believed to be related to options structures entered into prior to signing the Accord in 1999. It would appear that this is not the end of a series of sales by Portugal These sales show, with the bankruptcy of one of their gold debtors, that Portugal could not possibly be happy with its policy of lending gold or providing options on their reserves of gold. Such market activities are not appropriate for a guardian of a nations savings. The example this provided to other Central Bankers hopefully has scotched any intention of following that path. The head of the Portuguese Central Bank, no doubt has had more than a few very sweaty moments as he explained these sales to a government suffering from a sense of humour failure. Thankfully for him they were at high market prices, but not nearly as high as could be achieved in the future, we believe. Mr Gordon Brown, the mastermind behind the sales of the bulk of Britain's gold, well below $300 an ounce, survived his humiliation from his act of dubious accomplishment, with a politicians bravado devoid of good sense. Few Central Bankers remain, who don't twitch at the thought of emulating these men.

It is expected that the remaining supply from the W.A. quota for this year until September is being sold at the rate of just over 6 tonnes a week from Switzerland, as part of the 1300 tonnes sale it arranged before signing the Agreement. However, it is suspected that Portugal has not finished announcing the sales previously arranged, so Switzerland may well have to interrupt this sale programme to comply with the Agreement, as sales from any other source will have to beat the expense of Swiss sales. The balance of the Swiss sales will then have to be postponed until after Sept 2004.

The signatories of the W.A. know precisely from whom this balance of this year's tonnage will come, as they do next years sales. Any postponement of Swiss sales cannot be added to next years sales as this quota is already scheduled up to 400 tonnes.No more sales can be used to exert any downward pressure on the price, from Central Banks, unless at the expense of eliminating further sales up to September 2003. However, it can be part of post-September 2004 sales. No statements have been issued by the W.A. signatories as to arrangements post Sept 2004 and so gives rise to a great deal of speculation.

To turn such speculation into extrapolation requires a feel, of the nuances of the thinking of these Central Bankers.

A review of the "Washington Agreement" s critical agreements is necessary. These were: -

• Gold will remain an important element of Global Monetary Reserves.
• The gold salesalready decided will be achieved through a concerted programme of sales over the next five years. Annual Sales will not exceed approximately 400 tonnes and total sales over this period will not exceed 2,000 tonnes.
• The signatories to this agreement have agreed not to expand their gold leasings and their use of gold futures and options over this period.
• This agreement will be reviewed after five years.

Our conclusions: -

Market Impact

Official Market

We have the prospect now, of China encouraging the acquisition of gold by its citizens and itself, through the freeing of internal gold markets and the steady accumulation of gold in its reserves. Chinese off-take, once it has gained momentum, may equal annual newly mined gold in total, eventually [as we explained earlier].

In addition, Russia has taken a similar stance, publicly stating a pro-gold position and accumulating more gold in its reserves [Simply by adding local production to reserves].

We see the beginnings of an gold Dinar in Middle Eastern countries.

All in all, a discouraging picture for Central Bankers, intending to sell gold. The only vocal prospect of gold sales comes from the President of the German Central Bank, Herr Welteke, feeling out public opinion, on the prospect of German Gold sales. After previously indicating that small sales of gold from German reserves were possible, he subsequently said that the Bundesbank would only sell Germany's gold, provided it was able to invest the proceeds in income earning assets.

He well knows that it would take the changing of the country's laws to stop the proceeds from going direct to the German government. In saying this, he, in our opinion,moved away from the prospect of sizeable German gold reserve sales.

It is becoming clearer by the day, that there is a diminishing enthusiasm amongst Central Bankers to sell their gold.

Open Market

• That the demand on rising prices swallowed Portugal's 90 tonnes, so easily, shows the increased appetite of this market. With newly produced gold supply on the wane and the absorption of this large quantity, it is crystal clear that the remaining 123 tonnes, to be supplied from now to September 2003 by the "Official" suppliers, isnot sufficient to satisfy this market!
• Those who need to buy at these sorts of price levels [Producers who are aggressively de-hedging] are now on notice to do it quickly, or pay higher prices. This realisation willprecipitate further demand from the largest buyers in the market.In the first quarter of this year to date disclosed de-hedging is at 141 tonnes, but we feel that that figure may be substantially higher.With most gold producers being of the belief that we are in a multi year bull market in gold, de-Hedging could equal last years levels,should the gold price rise to closer to the $400 level again. To wait to above $375, would ensure losses on these hedges, so with gold at current levels [$340+ ] de-Hedging should be taking place as fast as the market can accommodate.
• Further "new" supplies canonlycome from Dis-hoarded, or Scrap gold.A higher price will be required to prompt this supply.
• Once they realise the coming tightening of the market, physical buyers will also be aware of the supply shortage situation andcould well secure supplies in excess of requirements ahead of a large price rise?

Conclusions

• We cannot ignore the Washington Agreement and its future successor any more. It is proving very successful! No doubt many of the Bullion Banks and Hedgers would have had many disasters had it not been in place. If these institutions don't take advantage of this "extra" supply to the market, they will face these disasters, because the "Official" supplies are dwindling rapidly this year and the 400 tonnes scheduled for next year arelooking insufficient to hold the price down. If we are right, the maximum impact of next years supply of 400 tonnes, will, at best,simply keep the market orderly in its rise, just as the key Central Bankers want.
  
• The next Central Bank Gold Agreement, will aimto reinforce the last one in its purpose, but not necessarily in its application. The next agreement can accommodate a lower, a higher, or the same level of sales as the present one, butit remains to be seen whether there will be willing sellers, in the face of the dubious stability of the $.
  
• It may even be that this next Agreement accommodates a 'new' method of valuing Gold in the signatories "Official" Reserves at$ market prices, as a first step to the re-affirmation of gold's support role in the Monetary system.[More on that later]