EUROPEAN CENTRAL BANKS AGREE TO LOWER GOLD SALES CEILING / THE FINANCIAL TIMES

European central banks agree to lower gold sales ceiling


By Javier Blas in London

Published: August 7 2009 12:10


Gold prices received a boost on Friday as European central banks announced a new 400 tonne ceiling for bullion sales over the next five years, 100 tonnes below the current limit.

Under the new agreement signatories to the Central Bank Gold Agreement, which includes most of the European central banks, agreed to drop the limit on annual sales from the current 500 tonnes from the end of next month. Total sales over the period would not exceed 2,000 tonnes.

The agreement will also include the planned gold sales from the International Monetary Fund’s bullion holdings.

The Swiss central bank, one of the world’s top 10 holders of the metal, also announced on Friday it had no plans to sell gold in the foreseeable future. The Swiss National Bank was a big seller earlier this decade and in the 1990s.

John Reade, a precious metal strategist at UBS in London, said the reduction in the ceiling was a “small positive” for the gold market, although he noted that the signatories of the Central Bank Gold Agreement agreement “have not used the full ceiling for the past couple of years.”

In London on Friday, spot gold was at $963 a troy ounce, near a two month high. Gold prices have risen since Lehman Brothers’ collpase last September, rising almost 13 per cent in the last 12 months. Bullion hit an all-time high of $1,034 an ounce in March 2008.

GFMS, the London-based precious metal consultancy, estimates that central’s gold net selling dropped in the first half of the year to 39 tonnes, down 73 per cent from the same period of last year. It forecast that this year’s net selling will total 140 tonnes, the lowest figure since 1994’s trough of 130 tonnes.

“The low net official sector sales number registered in the first half was primarily driven by falling sales from Central Bank Gold Agreement signatories,” the consultant said. “Countries outside the agreement remained on the demand side of the market.”

GFMS argues that the “anti-gold” climate that was prevalent throughout the 1990s and in the early part of the current decade seems to have come to an end. China shocked the bullion market earlier this year after reporting a significant rise in its gold reserves.

Since 1999, European central banks have sold about 3,800 tonnes of the precious metal, reaping about $56bn, according to calculations from official sales data and bullion prices.

The sales have left the central banks about $40bn poorer than they might have been because a sharp increase in gold prices over the last decade, from a low of $280 an ounce in 1999 to today’s $960 an ounce.

The proportion of European reserves held as gold remains extremely large even after years of sales, at an average of about 60 per cent, compared with the world average of 10.5 per cent. The US, the world’s biggest holder of gold, decided not to follow Europe’s move. In Europe, Germany and Italy are the only two big European central banks which have not sold their gold from their bullion reserves, mostly because of domestic disputes about what to do with the proceeds.

Copyright The Financial Times Limited 2009