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Roubini: Reduced Selling of Gold by Central Banks Should Support Gold Prices

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George Washington Blog
Monday, August 10, 2009

Nouriel Roubini writes:

Reduced central-bank gold selling and increased investor buying may have been helping to underpin high prices in 2008 at a time of turmoil in financial markets. The renewal of the central-bank gold selling agreement with a lower threshold suggests that gold sales by central banks will be lower in the next five years, a move the could support gold prices…

In August 2009, the central banks party to the central bank gold agreement (CBGA), which collectively have a gold share of just under 60% in their reserves, agreed to renew the treaty but with a lower maximum sales threshold. Analysts suggest that the marginally lower threshold could provide a “mild support” for gold. (See Javier Blas, Financial Times, August 7 2009)

The annual sales by the central banks party to the treaty will be less than 400 tons. The previous agreement had a cap of 500 tons per years. The IMF’s planned sales of 403 tons are included in the overall cap of 2000 tons from 2009-2014…


In 2008, European central banks sold the lowest levels of gold in about decade, reversing the practice of recent years whereby official sales helped depress gold prices. Banks bound by the central bank gold agreement (most of the European central banks) sold about 343 tons of gold, the lowest since the first agreement was signed in 1999, and well under the 500 ton annual limit…

The IMF, the third-largest official holder of gold, intends to sell 403 tons (12%) of its 3217 tons of gold, pending approval from 85% of its members which will likely be given in the fall. Any sales are likely be gradual and may be sold to central banks. John Reade, UBS: IMF gold sales are unlikely to be disruptive for the gold market and could be positive if the gold is purchased by other official investors (like central banks). (June 2009)

This article was posted: Monday, August 10, 2009 at 12:17 pm

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