The 15 signatories of the Washington Agreement of September the 26^th 1999 announced the following, in Clause 5 of the Agreement stating: -

"This agreement will be reviewed after five years."

This review is to take place in September 2004.

The word 'review' implies that the agreement stands, but will be revisited and possibly adjusted in the light of the present and future situation. There is not sufficient information there to assume this means a change of policy, or a change of understanding by the signatories. It would be irresponsible to jump to that conclusion.

Renewal: - A simple "renewal" of this agreement, or an extension, would have to be that the sales arranged pre-1999 could be completed after Sept 2004, such as the balance of the Swiss sales, and possibly the Portuguese sales, provided they had been "previously arranged", as stipulated in Clause 2 which stated: -

"The above institutions will not enter the market as sellers, with the exception of already decided sales."

For more, newly arranged sales to take place, a completely new agreement would be required, with all the participants agreeing to the "new" sales to be decided upon. Since Sept 1999, no more gold sale arrangements have been made to the public's knowledge. In the absence of such a "new" agreement, we can only understand the intention of the original signatories is to continue to abide by the Agreement and to sell no more gold after Sept 2004, except sales arranged pre-Sept 1999.

Such a renewal may well be to continue the Agreement, with no further sales being made, after all sales are completed, so validating the above statement.

As a preamble to the issue of the terms of the Agreement, the signatories made this joint statement on the gold in their charge, through Mr. Wim Duisenberg, President of the European Central Bank, [both then and now] part of which we quote here: -

"In the interest of clarifying their intentions with respect to their gold holdings..." [followed by the rest of the agreement.]

For new sales to now be arranged would break this spirit of the agreement and its original intention, making a pointless and foolish exercise of the original agreement. The conclusion must be to imply an intention to continue with the agreement, as originally formulated, if the review by the signatories continues to hold the same purpose as the original one. An adjustment to the Agreement could be made, if necessary.

It may be that previously arranged sales included those we have not seen, such as the Portuguese sales, which caught the market by surprise, but were part of the scheduled sales in 1999.

We understand that the quotas allotted to those sellers, are not transferable, i.e. if the Swiss decide not to sell 1300 tonnes in the next five years but instead only 1000 tonnes, then no other institution can sell the remaining 300 tonnes.

How many more will appear after Sept 2004, is not known by those outside the Central Bank, so we have to believe the collective, emphatic and unequivocal statements made by the 15 Central Banks, who were signatories of the agreement, being: -

Comments recorded in September / October 1999 highlighted additional realities: -

"In all, countries not covered by the agreement hold 4,800 tonnes of gold, and are free to sell; But in fact they are just as likely to buy. Several of them have in fact been buying to build up their gold reserves - Russia, Poland, and the Philippines, to name just a few." -

Since then China has been and surely will also be a substantial buyer on an 'Official' level as well as on a commercial and individual level. In the last two years China has purchased more than one hundred tonnes of gold into its reserves and liberated the gold market down to individual level, encouraging the acquisition of gold by its citizens.

Gold has always had and will always have, a monetary feature that is not theory, but as real as the 32,000 + tonnes of gold owned by the world's Central Banks. Central Bankers continue to say little, stating their position once and leaving it at that. They remain, however, the most important force in the market place. It is a commercial reality that holders of a huge item would not sell a small part of it and devalue the worth of the remaining balance.

The Table below show the past, present and future sales of gold by the Washington Agreement signatories:

Please note that the 280 tonnes sold to June 2003 came from the signatories of the W.A. and not from Central Banks outside the Agreement, as was mistakenly reported by some.

A look at this year, April, showed that 123 tonnes of gold remained to be sold of the Sept 2002 - Sept 2003 quota. This was being sold at around +9 tonnes a week, which happened to approximate the amount the Swiss had and were, selling on a weekly basis. Nine tonnes a week is, a significant reduction on the amount the market had been happily absorbing until June, leaving a supply shortfall until September. It is reasonable to state that perhaps the major reason the gold price is so strong is because of the current minimal gold sales by Central Banks.

The force of the Central Bank Gold Agreement

To properly understand the force of the Washington Agreement and assess the current and future activities of the Central Banks that signed the Washington Agreement, we have to absorb the nuances of the statements made immediately after the signing of the "Washington Agreement" and linked associations of the agreement.

The Agreement was finalised and agreed over a lunch in Washington, where the Group of Ten Central Bank Governors, and the US Secretary of the Treasury, Lawrence Summers, and the Chairman of the Federal Reserve, Alan Greenspan, were present.

Both the U.S. and Japan were present at the G10 discussions where the agreement was formulated.

- Alan Greenspan, in clarifying the U.S. position, said on 20th May, to the House Banking Committee, soon after Britain announced its decision to sell gold, that, 'gold still represents the ultimate form of payment in the world. Germany in 1944 could buy materials during the war only with gold. Fiat money in extremis is accepted by nobody. Gold is always accepted'.

- The Japanese government went one step further by stating their support, the following day on 27th September, by saying that it will not be selling, or lending gold.

- Neither the US nor the IMF currently lend gold.

- France and Germany hold a large proportion of their external reserves in gold because they believe that gold is the only thing that will ultimately secure a country's monetary independence and sovereignty. This reality alone should question any statements that they will sell.

- The central banks participating hold nearly 50% of the world's official gold holdings.

- The International Monetary Fund and Bank for International Settlements are to abide by the 'spirit' of the agreement.

- In addition Australia has said it will not sell any more gold.

- South Africa is unlikely to sell part of its reserves given the government's vehement opposition to the UK sales.

- These institutions account for another 36% of world holdings, bringing the total amount of official gold covered by the agreement to 85% of the World's total.

- In public at least, and as far as we know, the Agreement has been upheld, to date, since September 1999, four of the five years of the agreements life.

The concept that the Central Banks are shackled by this agreement is inaccurate, as is borne out by the stated I.M.F. Gold policy which is as follows: -

"It is an undervalued asset held by the IMF, and provides a fundamental strength to its balance sheet. Any mobilization of IMF gold should avoid weakening its overall financial position. Gold holdings provide the IMF with operational manoeuvrability both as regards the use of its resources and through adding credibility to its precautionary balances. In these respects, the benefits of the IMF's gold holdings are passed on to the membership at large, to both creditors and debtors. The IMF should continue to hold a relatively large amount of gold among its assets, not only for prudential reasons, but also to meet unforeseen contingencies. The IMF has a systemic responsibility to avoid causing disruptions to the functioning of the gold market."

The I.M.F. acts in a manner dictated by its Members, which include all the members of the signatories to the Washington Agreement [the Central Bank Gold Agreement]

The statements made by the signatories clarified the agreement and its intentions, so as to remove any subsequent misunderstandings. In this they have failed, as many apparently 'qualified commentators and analysts' still have not accepted the realities of the agreement and continue to misunderstand the Central Banks activities regarding Gold both now and in the future. Hopefully this clarity, will enable an understanding of the holders of "Official" gold in both the present and future.

At the time of the Agreement, several of the central bankers involved had said repeatedly that they had no intention of selling any of their gold, but they had been saying that only as individuals and no-one had taken any notice. Hence, the purpose of the agreement was to announce the termination of sales after already arranged sales were completed. Whilst this still leaves room for unannounced, but already agreed sales to come from the signatories, it would destroy the credibility of those Central Bankers, as well as that of the agreement, should they have had the intention of selling, when they stated publicly they did not.

Central Bank Gold Sales - Today and tomorrow

Looking ahead to next year [year 5 of the agreement] we expect to see the weekly sales of 6 - 7 tonnes from the Swiss to total 266 tonnes for the fifthl year, leaving them with around 15 + weeks of sales after September 2004, or a total of 148 tonnes still to go, of their previously arranged sales. Given the Swiss nature, we expect these sales to continue as steady weekly sales, into 2005, not sales of large chunks of the 148 tonnes. The Dutch are scheduled to sell 131 tonnes of their sales programme during that year, to total the 397 tonnes which will complete the 2000 tonnes sales scheduled. Apart from that no other sales have been announced to date. Sales of gold from Portugal were the result of options being 'called away'. No doubt the possibility of this happening had been declared to the other signatories to the agreement. Dependant upon the gold price, more of such sales may be announced, so increasing the amount remaining to be sold post Sept 2004, in line with the concept of previously arranged sales.

The current infrastructure of the Gold Market

In Clause 4 of the Agreement the statement was made that: -

"The signatories to this agreement have agreed not to expand their gold leasings and their use of gold futures and options over this period."

The Hedging and Lending and Leasing market has shrunk considerably, primarily because it was designed for a falling gold price, to allow an acceleration of gold supplies on a profitable basis. This greatly assisted the gold price decline over the last two decades, without Central Banks having to be the supplier of the excessive gold. The shrinking of these features of the gold market is consistent with the gold price turning around. What has happened is that those who focussed on hedging completely, have suffered badly. Now the reverse process is going on, the hedgers are delivering into their hedges with some actual buying back in the market place. But present market expertise will stay and adapt to the changing shape of the market, it seems, as new facets of the gold market are developed.

In conclusion

Central Banks intentions are crystal clear, as are the current sales figures. The agreement has worked and now guides us to see the market's future more clearly. Many commentators seem unhappy with the conclusions the Central Banks want us to reach. We prefer to listen to the Bankers, and take our positions accordingly.

The sale of 400 tonnes a year since Sept 1999 has managed to turn the market from a seemingly perpetually falling price to a steadily rising one.

The 400 tonnes available from next Sept 2003 - Sept 2004 sees a time when the gold market will move to its highest annual demand phase.

After September 2004 the supply shortages, first from Central Banks and then the slow decay of newly mined supply, will reduce the total gold available to the market.

Gold Producers fully understand this scene, so have and will, continue to pursue an aggressive de-hedging policy, while the needed volume of gold is available at these prices. Thereafter, demand will have to be supplied from dis-hoarded gold, attracted by prices which encourage them to dis-hoard.

The prospect of an unstable global economic climate, whether justified or not, reminds us all why these august body of Central Bankers saw fit to re-state, as they did in Clause 1 of the Agreement that: -

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