Sept 27, 2010
Something funny (and quite revolutionary) happened during the CBGA’s (Central Bank Gold Agreement) year ending this Sunday – the group of 15 signatory banks sold a mere 6.2 tonnes of gold, a massive 96% decline from the year earlier, according to provisional data. This means that unlike in the past, when it was central banker prerogative #1 to sell some gold and every year just to keep all the longs on their toes, this year the trend has finally changed. As the FT reports, “the sales are the lowest since the agreement was signed in 1999 and well below the peak of 497 tonnes in 2004-05.” And yes, we do love the FT’s brilliant summation of the change in mindset: “In the 1990s and 2000s, central banks swapped their non-yielding bullion for sovereign debt, which gives a steady annual return. But now, central banks and investors are seeking the security of gold.” Hm, when all of Europe (as well as America) is a smoldering heap of bearer bonds that will never get paid, and China is putting up a building today, only to blow it up yesterday, and boast a GDP growth rate of one gajillion, the FT may want to change the bolded assumption. Back to the Captain Obvious narrative of the original article: “The lack of heavy selling is important for gold prices both because a significant source of supply has been withdrawn from the market, and because it has given psychological support to the gold price. On Friday, bullion hit a record of $1,300 an ounce.” So market zero supply, and demand that is growing exponentially, means higher prices, eh? All those Voodoo 101 classes, and Poison Ivy college loans sure are paying off in droves…
More from the FT, on why CB sales are now and will be, a thing of the past:
European central banks are unlikely to sell much more gold in the new CBGA year, according to a survey by the Financial Times.
Although many central banks declined to detail their sales plans, the responses of some, along with numerous interviews with bankers and consultants, suggest it is unlikely there will be a return to the trend of the past decade, when CBGA signatories sold on average 388 tonnes a year.
The central banks of Sweden, Slovakia, Ireland and Slovenia said they had no plans to sell, while Switzerland reiterated a previous statement to the same effect.
The CBGA was first signed after gold miners protested that central banks’ rush to sell was depressing prices.
And here is a purdy pretty chart that confirms what every regular reader of this hyperventilating website has known for almost two years now. Also it turns out “fettle” does not mean ‘exponentially surging prices’ in UKish, even though it should.
This article was posted: Monday, September 27, 2010 at 3:22 am