Mostly: Classical

[amarksp]

Please read pages 6-10, excerpt below:
http://www.virtualmetals.co.uk/PDF/FortisMetalsMonthlySep05.pdf
And then please explain to me your rationale why Central Banks will sell under 500 tonnes this fiscal year.
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September sees the end of the first year of the second round of the European Gold Agreement, the five-year arrangement between European central banks under which they have agreed to limit their annual sales of gold reserves to 500 tonnes. Matthew Turner examines the development of the first year, and considers the prospects for the future. European central banks are selling their huge gold reserves in greater quantities and at a faster pace than ever before. Yet the gold market is aking it all in its stride. That's the lesson one can draw from the first year of the second European Gold Agreement, which draws to a close on September 26th. The longer-term implications however are more worrying for the gold market; it looks like a number of central banks wish to exit the gold market altogether.

When the renewal of the EGA was announced in March 2004, and even when it took force on September 27th of that year, there was much uncertainty about which central banks wished to sell gold. Unlike the first EGA, a hastily cobbled together wrapper around already announced plans by the UK and Switzerland to sell gold, the second Agreement had no obvious anchor country.

France said it wished to sell between 500-600t, Switzerland still had 130t remaining of its 1,300t sale, and the Netherlands said it would sell 165t. In total, however, this came to at most just 895t, and yet the Agreement had raised the annual sales limit to 500t, and thus the five-year total to 2,500t. When the largest gold holder in the Agreement, Germany, announced that they would only sell the 8 tonnes required for minting some gold coins, it was enough to make some analysts question whether the European central banks would actually sell the maximum 500t a year, let alone 2,500t over five years.

One year on few now doubt that the central banks will reach both limits. It is not just the speed at which they sold gold over this first year - the 500t allowed had been offloaded by August 12th, more than six weeks quicker than necessary, though this surely smacks of eagerness. It is also the number of central banks that have taken the opportunity to offload bullion – ten of them in total. In addition to Switzerland, France, the Netherlands and Germany, there was also Portugal, Sweden, Spain, Austria and Belgium. Worse still for the belief that gold retains a special place in central bankers hearts, the European Central Bank itself, which only acquired its 769t of gold at the start of Economic and Monetary Union in 1999, got rid of 47t without explanation1 (see table below for full list of sellers and how much they have sold).

EGA II year one
Tonnes sold
Switzerland 130
France 125
Netherlands 55
Portugal 55
ECB 47
Belgium 30
Spain 20
Sweden 15
Austria 10
Germany 5
Unaccounted * 10
Total 503
Source: Virtual Metals * Unaccounted as taken from ECB data which says only 'two central banks'. It is probably France and Germany
1 When we asked the ECB its explanation for the sale we were told that the European Gold Agreement was itself the explanation.


What about the remaining four years?
Looking ahead we still don't have much by way of official statements about sales for the remaining years of the Agreement. There are three distinct categories of central banks to consider: those who have announced their sales plans, whom we can call the announced sellers; those who are selling but who have not announced their plans, the unannounced sellers; and those who have neither announced their plans nor sold any gold, the undecideds. The table on announced sales shows there have only been just over 1,000t of future sales announced in advance, from Switzerland, France, Sweden, Austria, and the Netherlands (Germany is a special case to which we will return), ofwhich 300 tonnes were sold in EGA year one. Thus there are around 700 tonnes of announced sales to go, by the announced sellers, with the exception of Switzerland, which has completed its announced sales.

It should be noted that these alone are enough to fill the annual 500t limit for next year, and even for the sale of another 200t in EGA year three. If this is what happens in EGA year two then we will see France as the major seller, with the Netherlands taking second place. It also means there do not necessarily have to be any announcements or even sales from other central banks until March 2007.

Despite this, however, we do expect other central banks to sell some gold. In the first EGA there were 200 tonnes of sales from the unannounced sellers, central banks that sold gold and which had made no prior public statements of their intentions. These central banks, Portugal, Spain, Belgium and the ECB, have not only given no indication of how much they intend to sell, but importantly they have also given no indication that they do not plan to sell more. In fact the ECB said: It is not the ECB's intention to sell more gold for the first year of the agreement;, a statement that almost implies it will sell more gold in subsequent years.

But how much gold will these banks sell? History is not much of a guide. The following table shows the sales of these countries in the 1990s, during the first EGA and the first year of the second EGA, and their current gold holdings. Only Belgium had sold gold in the 1990s, an enormous 927 tonnes, before the EGA was signed in 1999. By the time of the first EGA Belgium's sales had finished, and of these countries only Portugal sold gold during the first EGA.