Eurozone central banks now buying gold, not selling - confirmed

Central Banks in the Eurozone have stopped selling and started buying gold so far in 2011. Not only is the Eurozone starting to buy, not sell gold, but this has been a trend in Asia, Middle East and Russia.

Author: Adrian Ash
Posted: Wednesday , 15 Jun 2011
MINEWEB

European central banks are no longer selling gold. They are buying it...So it's not just Asian, Middle Eastern and the Russian Central Bank bolstering their gold reserves.

LONDON (BullionVault.com) -

Here's a thing - Eurozone central banks have stopped selling and started buying gold so far in 2011.

Only by €6 million mind, and all of it in gold coin according to the European Central Bank's weekly statements. But this net gold buying still stands, even ignoring Estonia's 0.6 tonne purchase at New Year (its contribution, on joining the Euro, to the ECB's reserve assets).

New-member stockpiles and data adjustments aside, it's about the first net rise since the single currency was launched in 1999.

Just shy of 180 kilos by our maths here at BullionVault (that's 5774 troy ounces in old money), this year's small addition-to-date to the Eurosystem's gold bullion holdings barely registers against the 1,937 tonnes of sales over the previous 12 years.

It's also a drop-in-the-bucket compared to the Eurozone's joint spending on Greek, Irish and Portuguese bail-outs too, let alone the ECB's swollen balance-sheet. But it confounds those "rumours of rumours" of European central banks selling gold here in 2011 to help fund the next round of Eurozone rescues.

"Where there is rumoured smoke," reckoned Dennis Gartman of the eponymous $5000-a-year newsletter at the start of June, "there can be actual fire." Whereas in fact, where there's a genuine crisis, central banks are loath to sell - as the Bank of Italy proved in summer 2009 (and under the leadership of the ECB's likely new chief Mario Draghi too).

It's when everything looks just fine that central banks sell. Because "Who needs gold when we've got Alan Greenspan?" as the New York Times asked in 1999.

To recap...

Twelve years ago, with gold prices in a 20-year bear market, those central banks about to toss their currencies into the dustbin of history and unite under the Euro found themselves holding much more of the yellow stuff than they wanted.

Yes, once the Great Inflation of the 1970s and '80s was out of the way, they'd already been selling their gold reserves down for a decade or so. And yes, gold would play a key role at the new European Central Bank too, accounting for 15% and more of the reserves transferred to the new Frankfurt super-bank from each member's national hoards.

But as the single-currency project was smacked into life, its member nations still held on average over 30% of their total foreign-currency reserves in gold bullion - gold which they wanted to replace with better yielding, less yellow and less indestructible assets. And then Gordon Brown struck.

You remember Gordon - big, moody fellow. Destroyed the UK's pension savings. Ruined its public finances. Still not sinister enough to run the IMF. In his wisdom, and counselled by pretty much everyone who bothered to look - as well as bolstered by recent gold sales from Australia, Austria, Canada, the Netherlands, Belgium, Switzerland and South Africa (but against the advice of both the Bank of England and the biggest bullion banks) - Brown announced in June '99 that starting two months later he would sell over half the UK's remaining gold reserves. At a two-decade low! With two months' notice! And with 40% of that very same UK gold already out on loan (not that anyone spotted it then) and thus available for short-sellers to borrow - and sell - thus depressing prices still further by the time Gordon's gold sales actually began in August.

This is the man who thinks he ‘saved the world' in 2008.

Now, back in 1999, and across the Channel, all those central-bank types lining up to sell another chunk of their national gold reserves were horrified by the UK's cack-handedness. So rather than leaving the market to try and second-guess where the next such might spring from - again depressing the price, already 75% off its top of Jan. 1980 - the Europeans got together (and got Gordon together too, as well as the Swiss, who'd just held a referendum on selling a chunk of their massive gold hoard) to agree that, henceforth, they'd cap the sum of their sales. Most important, they'd tell the world in advance.

The first gold agreement was signed in Washington (hence the name given by analysts) in September 1999 and ran for five years. It was renewed in 2004 (wittily termed "the second Central Bank Gold Agreement"), before being renewed again (as "the third") in Sept.2009.

But the question, with gold prices now at new all-time highs - and with the banking crisis swiftly morphing into the largest state deficits outside of war - was why bother?

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