Gold Forecaster
- Global Watch
The Central Bank Gold Agreement
& why Germany keeps a firm grip on its gold
Julian D.W.
Phillips
Aug 31, 2006
Latest sales under
the C.B.G.A
In the week ended
the 25th August, sales of gold by one signatory of the Central
Bank Gold Agreement amounted to 1 tonne of gold.
Still no appetite for selling
anywhere near the 'ceiling' levels, it is becoming clear to all
slowly that the Central Banks are unlikely to drop large tonnages
of gold onto the market at this stage of the Central Bank Gold
Agreement year. We hold to our expectation that the C.B.G.A.
signatories will sell only what has already been announced, that
is around 300 tonnes each year for the next two years only. The
balance will then be sold in the last year.
Why Germany keeps
a firm grip on its gold
 We have
been waiting for some sort of announcement from Herr Axel
Weber, the President of the German Bundesbank. It seems as he
is learning the political skill of being as clear as mud on the
question of future gold sales, making the Bundesbank's position
absolutely clear on the fact that he will not sell gold for any
reason connected to the political argument that gold should be
sold to finance the budget deficit. But commentators could not
resist the opportunity to take this out of context. He was asked
to comment on gold sales with reference to assisting the government
in its budget plight, a discussion that has been going on for
years now. Weber has insisted as did his predecessor that the
gold reserves were not to be dipped into in place of sensible
and practical means to cut the budget deficit of the government.
So see the statements below in the context of this discussion,
not in the context of will the Bundesbank be selling gold in
the next years.
What he has just said is the
following:
"The Bundesbank reserves
the right to reallocate some of its gold reserves into foreign
currencies but does not plan to sell any to help overhaul Germany's
public finances. We've never said that we don't want to sell
gold in general. It's conceivable that our reserves could be
reallocated somewhat -- from gold into foreign currencies. [In
the context of selling to support the deficit] But we don't want
to draw on Germany's currency reserves.
It's not a good idea to touch
the substance. It would be better to consequently push for the
reduction of debts. Gold is an important factor for the confidence
in the stability of the €.
He did not detail any concrete
plans by Germany's central bank to restructure its gold reserves.
In addition to the gold holdings,
the Bundesbank held foreign currency reserves [which included
U.S. dollars and Yen, worth around €28 billion.
So we have to wait, still,
for a statement from Axel Weber on its intentions in terms of
the Central Bank Gold Agreement option it has been given to sell
up to 600 tonnes. Our expectations are that he will retain the
position he has held for the last two years, not to sell.
The basis of this belief lies
in the statement he made above, "Gold is an important
factor for the confidence in the stability of the €."
With such a belief, it seems contradictory to sell even some
of Germany's gold. Gold is clearly moving into the position we
have expected it to for some years, of supporting currencies
where they are vulnerable to a loss of confidence!
We expect an announcement from
the Bundesbank towards the end of September after the meeting
of the Bundesbank then.
Gold Forecaster is shortly to enter the fund management
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August 29, 2006
-Julian
D.W. Phillips
email: gold-authenticmoney@iafrica.com
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