Background to the Central Bank Gold Agreement

Background to the Central Bank Gold Agreement

7 hours 3 mins ago

The European Central Bank confirmed on Friday that a new five-year Central Bank Gold Agreement had been signed to replace the existing pact, which expires in late September.

Gold sales under the existing CBGA have totalled only 1,866.8 tonnes so far, according to figures released by the World Gold Council, some 25 percent below the 2,500-tonne sales ceiling.

Below is a history of the CBGA.

* The original CBGA was signed in 1999 by the central banks of Germany, Great Britain, France, Austria, Switzerland, Belgium, the Netherlands, Ireland, Sweden, Finland, Luxembourg, Spain, Portugal, Italy and the European Central Bank.

* The pact, which was aimed at bringing stability to gold prices by guaranteeing signatories would not flood the market with bullion, limited their gold sales to 400 tonnes a year.

* The signatories also agreed not to expand their gold leasings and their use of gold futures and options over the five-year period of the pact.

* Greece replaced Britain in the second CBGA, signed in 2004. The terms of the second agreement were similar to the first, but the sales ceiling was raised to 500 tonnes per year.

* Slovenia joined the agreement in December 2006 and Cyprus and Malta in January 2008, just following their adoption of the euro. Slovakia joined in January 2009.

* Total sales under the first CBGA met the allowed ceiling of 2,000 tonnes. Signatories sold 400 tonnes of gold in the first year of the pact, 404 tonnes in the second, 393 tonnes in the third, 418 tonnes in fourth and 385 tonnes in the fifth.

* Sales in the first year of the second agreement almost met the maximum sales threshold, at 497.2 tonnes. Sales eased to 395.8 tonnes in 2005-06, the second year of the pact, but rebounded to 475.8 tonnes in the third year.

* Since then they have declined each year, with sales in the final year of the pact currently at only 140 tonnes. Total sales under the second CBGA have reached only 1,866.8 tonnes.

* According to figures released by the World Gold Council at the end of June, the current signatories of the CBGA collectively hold 11,991.6 tonnes.

* The largest gold holders within the current CBGA are Germany, with 3,412.6 tonnes, Italy, with 2,451.8 tonnes, and France, with 2,450.7 tonnes. The smallest are Slovenia, which has 3.2 tonnes, Luxembourg, with 2.3 tonnes, and Malta, which has just 0.5 tonnes.

Source: World Gold Council.

European central banks' new gold sales agreement could include IMF planned disposals

Source: BI-ME and agencies , Author: BI-ME staff
Posted: Fri August 7, 2009 2:39 pm


INTERNATIONAL. European central banks agreed on Friday to a third five-year cap on gold sales and said planned disposals by the International Monetary Fund (IMF) could be done within the accord.

In a joint statement that was also signed by the euro-zone's 16 national central banks,the European Central Bank (ECB), the Swiss National Bank and Sweden's Riksbank the institutions agreed to limit total gold sales to 400 metric tons a year, with total sales over the five-year period capped at 2,000 metric tons.

That’s less than the annual cap of 500 tons in the current agreement, which expires on 26 September.

"Gold remains an important element of global monetary reserves," the central banks said.

The plan takes effect on 27 September, immediately after the expiration of an existing five-year agreement.

In a separate statement, the Swiss National Bank (SNB) said it had no plans "for any further gold sales in the foreseeable future."

The SNB said its gold holdings of 1,040 metric tons constitute a substantial part of its currency reserves.

The ECB said the overall cap on sales in the next five-year period would be reduced to 2,000 tonnes from the current 2,500 tonnes. Annual sales would not exceed 400 tonnes, it added.

No new signatories would join the new deal from September, but the IMF's intention to sell gold could be included within the agreement.

"The signatories recognise the intention of the IMF to sell 403 tonnes of gold and noted that such sales can be accommodated within the above ceiling," the ECB said in a statement.

The European deal was seen as key before the International Monetary Fund could start selling their holdings.

Analysts said the new agreement did not include any big surprises.

"The news should help to underpin gold prices," said John Meyer, an analyst at the UK brokerage Fairfax, in a note to clients. "This combined with currency volatility, ongoing uncertainty, unexpectedly high quantitative easing and ETF gold fund popularity should help gold prices go higher."

“It’s positive for gold,” John Reade, an analyst at UBS AG in London, told Bloomberg by e-mail. Having the agreement “removes the small chance that European central banks would have dumped gold onto the market in an unconstrained manner.”

"It is not a surprise at all that there is a new Central Bank Gold Agreement ... if only to allow the accommodation of the IMF sales," Stephen Briggs RBS Global Banking and Markets commodity strategist, told Reuters. "It is reassuring that the IMF sales will be within the agreement."

Central banks sold 73% less gold in the first half and full-year disposals may drop to the lowest since 1994, according to estimates from London-based researcher GFMS Ltd. The IMF wants to sell 403 tons from its reserves of 3,217 tons, the third-largest holding after the US and Germany.

The IMF is not currently a signatory of the pact, but selling its gold within the CBGA would avoid disruptions to the gold market.

“The IMF has not signed and this leaves open the possibility that the Chinese, Russians, another central bank, could buy the 403 tons of IMF gold in one go,” Reade said.

The ECB holds 501 tonnes of gold, according to the World Gold Council, worth about US$15.5 billion at current prices, according to Reuters calculations.

Gold for immediate delivery in London was US$3.70 down or 0.38% at US$959.30 an ounce by 11.19am local time.

Gold prices reached US$971.68 an ounce yesterday, the highest since 5 June.

2nd UPDATE: ECB, SNB, Riksbank Sign New 5-Year Gold Agreement
(Adds analyst comments, recasts lead) By Nina Koeppen and Matthew Walls, Of DOW JONES NEWSWIRES FRANKFURT -(Dow Jones)- European central banks party to the Central Bank Gold Agreement have renewed their five-year gold agreement, which will lower the annual sales limit to 400 metric tons of gold and allow for the International Monetary Fund to join as a new signatory if it wishes to.

The European Central Bank, the 16 central banks of the euro zone, Sweden's Riksbank and the Swiss National Bank all signed up to the third CBGA agreement, the ECB said Friday.

The announcement was keenly awaited because the old pact expires in September, and surprised the market as it imposed a stricter limit on sales even while it allows for the IMF to join at a later date.

Analysts said the lower ceiling on gold sales was a belated recognition that central banks have grown less willing to sell their reserves, reflecting a change in thinking at central banks at a time when the dollar is in decline and inflation worries are widespread.

"Bottom-line it's modestly positive because it's less gold," said UBS analyst John Reade. The ECB's referral to the IMF in its statement "shows you the current signatories don't have plans to use the entire ceiling," Reade added.

The euro-zone's new member states, namely Cyprus, Malta and Slovakia, joined the pact for the first time.

"Gold remains an important element of global monetary reserves," the ECB said in the statement.

The ECB said total gold sales over the five-year period will not exceed 2,000 tons. The new program will start on Sept. 27, immediately after the end of the previous agreement.

The ECB hinted in its statement that the IMF may join the agreement at a later date.

"The signatories recognize the intention of the International Monetary Fund to sell 403 tons of gold and noted that such sales can be accommodated within the above ceilings," the ECB said in the press release.

Commerzbank precious metals analyst Eugene Weinberg said the agreement wouldn't have much of an impact on gold prices in the near term, as a renewal of the agreement was expected.

At 0902 GMT, spot gold was trading at $959.95 per troy ounce, down 0.2% on the day.

However, the lower ceiling is an encouraging development for gold prices, as it suggests gold's regaining its former status as a monetary asset.

"Many central banks are reviewing their position on gold," he said. "Gold has been over the last years probably the most stable currency."

ECB Office Web site: www.ecb.int

-By Nina Koeppen and Matthew Walls, Dow Jones Newswires; 4420 7842-9496; nina.koeppen@dowjones.com
Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=A3Jv4DamkyQ44b3kWTJOsA%3D%3D. You can use this link on the day this article is published and the following day.