SubscribeCentral Banks to slow gold sales
Sales of gold by European central banks are likely to be lower than expected over the next year as the global banking crisis boosts bullion’s appeal as a “safe” reserve asset.
And banks elsewhere in the world, most notably in Asia and the Middle East, may even become buyers of gold in an attempt to diversify their reserves away from the U.S. dollar, analysts say.
Under the terms of the Central Bank Gold Agreement, signed in 1999 by key European institutions including Germany’s Bundesbank and the European Central Bank and renewed in 2004, members can sell up to 500 tonnes of gold a year.
But in the fourth year of the latest agreement, which ended last Friday, sales fell well short of this ceiling, to just over 357 tonnes.
With banks worried by the outlook for the financial sector, sales could be even lower in the final year of the pact.
“Given the damage done to a lot of other paper assets that were formerly considered secure, there will be greater risk aversion among central banks,” said Philip Klapwijk, executive chairman of metals consultancy GFMS. “This will only boost gold’s status within central bank reserves.”
My comment: Frank Holmes was on with Jim Puplava today and they were discussing this exact same issue. The thinking on just holding paper currencies as a reserve is going to come under question as attitudes change over the next few years. This will be especially true as central banks go into competitive devaluation mode which I suspect will be the next phase of the bailout. We should start seeing some coordinated rate cuts in the near future. Jean Claude Tricet indicated that the ECB changed its bias away from inflation to growth at the last ECB meeting
John Polomny
The Real Deal
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Comment by HalP on 6 October 2008:
That is interesting news indeed. Also read today on Forbes that the CEO of Gold Fields sees a shortage of gold supply developing over the next year as mining companies are going to have difficulty in developing current projects.
Here’s the link: EXCLUSIVE-Gold Fields CEO sees global gold supply tighter
Frankly, while following gold today with ExactPrice, I was surprised that gold didn’t rise more than it did. But with the failing financial markets in Europe that seems to have strengthened the dollar..
Very interesting times watching this global credit crunch unfold.