Spain’s Central Bank sells another 25 tonnes of gold

Dear readers,

News flash! Spain’s Central Bank gold reserves were reduced by another 800,000 ounces or 25 tonnes during July and it seems that they’re not going to stop there.

Check out the article by Mineweb in their Gold and Silver Analysis for more details.

Spain’s Central Bank sells another 25 tonnes of gold; what next?
The Central Bank of Spain has renewed its gold disposal; what implications does this have for the near to medium term?
Author: Rhona O’Connell
Posted: Tuesday , 07 Aug 2007


The latest figures from the Bank of Spain show that, after no gold sales cleared during June, gold reserves were reduced by another 800,000 ounces or 25 tonnes during July. This takes the Bank’s disposals during this current calendar year to 134 tonnes and disposals under the second Central Bank Gold Agreement year-to-date to 4.8 million ounces or 149 tonnes.

It had originally been suggested that the Bank of Spain would, having sold roughly 100 tonnes between February and June, stop there. Clearly this was not the case and begs the question as to how much more the Bank is proposing to sell. The Bank has not publicised its intentions, although there have been some suggestion that it has been able to utilise the quota allocated for Germany, which has specified that it will, in this year at least (as was the case for the last two years) be selling only minimal amounts. The German option for the full five-year period is for up to 600 tonnes of gold sales, of which ten tonnes were completed in the first two years of this CBGA agreement. Remember though, that the rules of the Agreement specify that while a total of 2,500 tonnes may be sold across the whole membership over the five year period, sales should note exceed 500 tonnes in any one year.

This year’s Agreement closes on 26th September, leaving us with seven more weeks of sales. Figures from the European Central Bank suggest that sales in the CBGA year to date amount to 353 tonnes (compared with 340 tonnes in the second CBGA year, when sales amounted to just short of 400 tonnes for the year as a whole). This means that if the full 500-tonne quota were to be met this CBGA year then the average weekly rate of sale from now on would have to amount to 21 tonnes, against an average to date of eight tonnes.

The average during July was 17 tonnes, with the resumption of Spanish disposals and the start of disposals from the Swiss National Bank, which is proposing to sell up to 250 tonnes over a period of time in order to rebalance its gold within its foreign exchange reserves to roughly 33% as against 42% at the start of May, when the first gold fix for the month was $677.50. The fix this morning (Tuesday 7th August) was $669.25, at which price the average gold holdings across the world (i.e. including supranational organisations) amounted, to approximately 14.5%. It is not possible to be absolutely precise due to the lag in publication of reserve figures.

The average holding across the members of the European system of Central Banks (not just the ECB itself) amounts currently to approximately 14%, although within that system some of these figures are markedly higher, with Germany at 63% and France at 57%. Spain is currently at 38%. In the United States, of course, (which is not a signatory to the CBGA although along with Japan, it has agreed to abide by the spirit of the Agreement), gold comprises a much higher degree of foreign exchange, at 76%.

At the other end of the scale are the Asian nations, among whom are the world’s largest holders of foreign exchange reserves. China’s holdings, at a reported 600 tonnes, still amount to just less than one per cent of China’s total foreign exchange, while India has 4% and Japan, 2%. It has been regularly suggested that these countries should diversify away from dollars and it is clear that this is underway in a variety of ways (including, for example, China’s proposal to set up a separate fund for part of its future foreign exchange accrual, to be invested in alternative assets away from currencies and government instruments). The gold market is too small for a meaningful acquisition in terms of rebalancing currency portfolios, a point that has often been made by some of the governments in question, although there is little doubt that a number of governments are looking more favourably at increasing the level of their gold holdings over a period of time.

Meanwhile the Italian Parliament now has to consider the possibility of reducing gold holdings, although whether it would be allowed to do so for its stated purpose, i.e. to reduce government debt, is not yet clear. Certainly the proposal, when mooted in Germany, some years ago, was not permitted on constitutional grounds

Finally the proposed disposal of 400 tonnes from the IMF would come under the auspices of existing or future Central Bank Gold Agreements and should not worry the market. Indeed the fundamentals of the gold market are easily strong enough to absorb this metal. As the markets became only too well aware over the course of the 1990s, it is not the volume of metal that hits the market that is important, it is the timing and the surrounding levels of uncertainty that is disruptive. This is why the Central Bank Gold Agreement is in place and why we should expect that it will be renewed in two years’ time.


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