20th May 2014 by Adrian Ash
The Eurozone central banks, plus Switzerland, have signed a new gold sales agreement. It will start running when the current deal expires in September. The deal was first signed in September 1999, after the UK Treasury had dumped half the nation’s gold on the slate, spiking the price lower. Known since as CBGA1, that agreement finally put a floor under gold sentiment, and prices. It set an annual and 5-year ceiling for European central bank gold sales, which were still all the rage but now came with clear limits. Come the third CBGA signed in 2009 however, no one was selling gold anymore anyway. Central banks sell gold at low prices when everything looks fine. They hold it close when prices rise amid financial crisis strikes.
So this new Central Bank Gold Agreement isn’t much of a treaty. No longer than its own press release, the agreement only repeats the spirit of CBGAs 1, 2 and 3. It simply says:
As a vote of confidence in Europe’s gold holdings, this new agreement is nothing like as loud as the fact that none of the signatories have sold any gold during the current CBGA3, not beyond a couple of tonnes for commemorative coins. Against a 5-year limit of 2,000 tonnes, those sales total just 23.5 tonnes. BullionVault users alone have bought well over 60% as much gold since September 2009. Indian households are buying that much every month even with the de facto import ban still in place.
With or without central bank sales, in short, gold continues to return to private ownership after its lock up in the 20th century. Like a widely-accepted and market-determined price benchmark, such as the London Gold and Silver Fixes, this is a good thing. Here’s hoping politicians and bureaucrats let the free markets get on with both.