Gold Rises After European Central Bank Caps Sales: Silver Gains
By Pham-Duy Nguyen and Claudia Carpenter
June 1 (Bloomberg) -- Gold in New York rose the most three months on speculation that central banks will slow metal sales after the European Central Bank said it has no plans to sell more bullion through September. Silver jumped 2 percent.
The ECB is one of 16 signatories of the so-called Central Bank Gold Agreement, which allows members to sell no more than 500 metric tons of gold each year. The ECB said today it sold 60 tons since September. The metal fell 6.6 percent to $651.50 an ounce on May 24 from an 11-month high of $698 on April 20. Some European central banks sold gold worth $912 million last month.
``It's a psychological boost for the market,'' said Dennis Gartman, gold trader, economist, and editor of the Suffolk, Virginia-based Gartman Letter. ``You've removed a seller.''
Gold futures for August delivery rose $10.20, or 1.5 percent, to $676.90 an ounce on the Comex division of the New York Mercantile Exchange, the biggest percentage gain since Feb. 21. The metal has climbed 6.1 percent this year. The price gained 2.3 percent this week, marking the first increase in four weeks.
Signatories of the central-bank accord sold about 290 tons of gold since September, according to George Milling-Stanley, manager of investment and market analysis at the producer-funded World Gold Council.
Under the agreement, which began in September 2004, members are allowed to sell 2,500 metric tons over five years. Signatories include central banks in Spain, France and Portugal.
The ECB's sale of 60 tons doesn't include gold sold by other European central banks, ECB spokesman Raphael Anspach said. GFMS Ltd., a metals-research firm in London, estimates the banks will sell about 400 tons under the accord this year.
`Free to Breathe'
``The banks have been selling aggressively for the past three weeks, and that's kept the market from going anywhere,'' said Carlos Perez-Santalla, gold trader and president of Hudson River Futures in New York. ``Now, the market is free to breathe.''
The ECB sold 47 tons in the first year of the agreement and 57 tons in the second year. CBGA signatories sold about 497 tons from 2004 to 2005, and 396 tons from 2005 to 2006, according to the data from the World Gold Council.
``Heavy central bank sales appear to have peaked for now,'' said William O'Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey. ``We expect $700 to be revisted.''
Silver futures for July delivery rose 27 cents to $13.74 an ounce. The percentage gain was the most since Feb. 23. The price climbed 5.7 percent this week, the most since early December. The metal had slid in the past six weeks.
Historical price charts show silver is a better buy than gold after the price rebounded this week, Gartman said.
``Silver's far more important industrial demand trumps gold's mere investment demand,'' Gartman said. ``Time to own silver.''
Silver has climbed 6.2 percent this year. The metal rose 46 percent last year, while gold climbed 23 percent.
A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.
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