Gold Sales: central banks want IMF to sell gold first
2009-08-14 16:50:00
LONDON (Commodity Online): In the last few weeks we have learnt more details of the gold sales plans by the International Monetary Fund (IMF) and also the European Central Bank (ECB) has announced (on 7th August) that the Central Bank Gold Agreement (CBGA), the pact limiting gold sales by European central banks, would be renewed, says a new report from BNP Paribas Fortis on gold.
They are linked: on present information it looks likely the IMF sales will be the CBGA sales, at least for the first few years.
The new CBGA (III) will begin on 27th September, after the current one expires. So far much of what has been disclosed about the renewed Agreement is familiar, with the signatories being the same as those of the CBGA II, except for the addition of the Slovakian National Bank (which joined the euro earlier this year and was the only Eurozone member not to be in the CBGA).
The primary difference from the current CBGA II is that the sales limit will be reduced to 400t/year, from 500t/year, which returns the cap to the level of the original 1999 CBGA. It will also drop the lending cap, which prohibited gold lending above
the levels prevailing in September 1999.
The terms of the new Agreement confirm that the "signatories recognise the intention of the IMF to sell 403t of gold and noted that such sales can be accommodated within the above ceiling" of the new CBGA.
The lower sales limit acknowledges the reality that there are very few sellers out there. Sales of gold from 27th September 2008 to end July 2009 have been just over 140t, far short of the 500t limit.
Given that only France and Sweden are selling at the moment1 (and even they sold almost nothing in July) there is no good reason to believe there is an avalanche of selling just waiting for the new Agreement to start. In any case full-year sales are likely to be no more than 180t, and even that (see table) assumes another sale from the ECB, which is pure guesswork.
Currently, we are still not aware of any sellers in the new Agreement apart from the IMF, and any predictions in this respect are based mainly on historical trends. Switzerland on the same day as the CBGA announcement released a press release ruling itself out of more sales (although it used the words, no plans), and while there remains plenty of gold to sell (the Eurozone members have 10,810t) it is difficult at present to see how an amount of 400t/year will be sold each year.
Aside from Switzerland, of the large holders Germany has edged away from selling in recent years and Italy is embroiled in a gold tax dispute between the government and central bank, which suggests sales are not on the agenda at the moment (although if the government fails to raise revenue in this way it might increase the possibility of sales in the future).
That leaves France, which will probably sell some more (although again its lower level of sales in the last few months suggests otherwise), plus sales from maybe the ECB and some of the smaller holders. This would give an annual rate of around 200t-250t only.
The IMF sales then are likely to be the only game in town for a while. Details are finally being fleshed out. Reza Moghadam, director of the IMF's Strategy, Policy and Review Department, said in late July: "Gold sales take time, and what we have committed as part of our new income model is to have gold sales, if done on the markets, to be done through the central bank sales mechanism."
He added that the IMF hoped to have had the formal vote to authorise gold sales agreed in time for the IMF's October meetings (on 6th and 7th October), with preliminary meetings from 30th September, in Istanbul. Sales would take two to three years to complete, which implies a rate of 134t-200t/year.
IMF documentation released on the same day showed that the Fund planned to use any excess profits received from the gold sales over $850/oz to boost concessional lending to poorer countries, with the rest being used for a fund to provide an endowment to provide future funding for the IMF.
That these are the uses to which IMF gold sales revenue is being put makes us wonder whether other central banks, even if they wish to sell, will feel obliged not to sell during the period the IMF does, in order to maximise the gold price and hence revenue that the IMF receives.
Finally on the new CBGA, the disappearance of the lending cap is slightly puzzling, as while presumably a reflection that a cap is meaningless given that lending has shrunk enormously in line with lower producer hedging, it would surely have therefore not mattered if it had been kept?
Volumes have collapsed lending is estimated to have been about 2,100t in 1999, but we estimate that it is now significantly under 1,000t. Of course having no cap does mean lending could be expanded quickly, although it is hard to foresee the need for this arising in the near-term.
Courtesy: BNP Paribas Fortis heding and gold report
2009-08-14 16:50:00
LONDON (Commodity Online): In the last few weeks we have learnt more details of the gold sales plans by the International Monetary Fund (IMF) and also the European Central Bank (ECB) has announced (on 7th August) that the Central Bank Gold Agreement (CBGA), the pact limiting gold sales by European central banks, would be renewed, says a new report from BNP Paribas Fortis on gold.
They are linked: on present information it looks likely the IMF sales will be the CBGA sales, at least for the first few years.
The new CBGA (III) will begin on 27th September, after the current one expires. So far much of what has been disclosed about the renewed Agreement is familiar, with the signatories being the same as those of the CBGA II, except for the addition of the Slovakian National Bank (which joined the euro earlier this year and was the only Eurozone member not to be in the CBGA).
The primary difference from the current CBGA II is that the sales limit will be reduced to 400t/year, from 500t/year, which returns the cap to the level of the original 1999 CBGA. It will also drop the lending cap, which prohibited gold lending above
the levels prevailing in September 1999.
The terms of the new Agreement confirm that the "signatories recognise the intention of the IMF to sell 403t of gold and noted that such sales can be accommodated within the above ceiling" of the new CBGA.
The lower sales limit acknowledges the reality that there are very few sellers out there. Sales of gold from 27th September 2008 to end July 2009 have been just over 140t, far short of the 500t limit.
Given that only France and Sweden are selling at the moment1 (and even they sold almost nothing in July) there is no good reason to believe there is an avalanche of selling just waiting for the new Agreement to start. In any case full-year sales are likely to be no more than 180t, and even that (see table) assumes another sale from the ECB, which is pure guesswork.
Currently, we are still not aware of any sellers in the new Agreement apart from the IMF, and any predictions in this respect are based mainly on historical trends. Switzerland on the same day as the CBGA announcement released a press release ruling itself out of more sales (although it used the words, no plans), and while there remains plenty of gold to sell (the Eurozone members have 10,810t) it is difficult at present to see how an amount of 400t/year will be sold each year.
Aside from Switzerland, of the large holders Germany has edged away from selling in recent years and Italy is embroiled in a gold tax dispute between the government and central bank, which suggests sales are not on the agenda at the moment (although if the government fails to raise revenue in this way it might increase the possibility of sales in the future).
That leaves France, which will probably sell some more (although again its lower level of sales in the last few months suggests otherwise), plus sales from maybe the ECB and some of the smaller holders. This would give an annual rate of around 200t-250t only.
The IMF sales then are likely to be the only game in town for a while. Details are finally being fleshed out. Reza Moghadam, director of the IMF's Strategy, Policy and Review Department, said in late July: "Gold sales take time, and what we have committed as part of our new income model is to have gold sales, if done on the markets, to be done through the central bank sales mechanism."
He added that the IMF hoped to have had the formal vote to authorise gold sales agreed in time for the IMF's October meetings (on 6th and 7th October), with preliminary meetings from 30th September, in Istanbul. Sales would take two to three years to complete, which implies a rate of 134t-200t/year.
IMF documentation released on the same day showed that the Fund planned to use any excess profits received from the gold sales over $850/oz to boost concessional lending to poorer countries, with the rest being used for a fund to provide an endowment to provide future funding for the IMF.
That these are the uses to which IMF gold sales revenue is being put makes us wonder whether other central banks, even if they wish to sell, will feel obliged not to sell during the period the IMF does, in order to maximise the gold price and hence revenue that the IMF receives.
Finally on the new CBGA, the disappearance of the lending cap is slightly puzzling, as while presumably a reflection that a cap is meaningless given that lending has shrunk enormously in line with lower producer hedging, it would surely have therefore not mattered if it had been kept?
Volumes have collapsed lending is estimated to have been about 2,100t in 1999, but we estimate that it is now significantly under 1,000t. Of course having no cap does mean lending could be expanded quickly, although it is hard to foresee the need for this arising in the near-term.
Courtesy: BNP Paribas Fortis heding and gold report