.png)
CBGA gold sales minimal as IMF sales continue
From the start of the third Central Bank Gold Agreement on 27th September....
From the start of the third Central Bank Gold Agreement on 27th September last year, though to the end of May, fewer than two tonnes of gold had been sold by the CBGA3 signatories from a total annual quota of 400 tonnes. For months on end during 2010 there was, with the exception of 0.2 tonnes of gold sold, according to the World Gold Council, by Greece, no evidence of any activity- although the IMF sales can effectively, on a de facto basis at least, be taken under the CBGA umbrella; see below.Now there has been some stirring. Only a small tonnage, but the European Central Bank reports that in the week to 23rd July there was a net disposal of gold, implied volume almost four tonnes, corresponding "to the sale of gold by one Euro system central bank (consistent with the Central Bank Gold Agreement) and the purchase of gold by another Euro system central bank". Small purchases are not out of the ordinary and so nothing should be read into this. Equally the fact that the net transaction does not even amount to four tonnes suggests that one CBGA signatory was simply letting a little go when gold was hovering around $1,200 in mid-July and does not mean that this will become a target price for disposals.Of more significance is that physical demand, while remarkably robust on an underlying basis, is tailing off at this price level and so it may take on an increasing psychological and physical significance. Round numbers are always important (even if not technically so) and this time is no different.Even if the signatories to CBGA3 are rumbling back into action it is impossible to visualise this year’s CBGA3 sales coming anywhere near their 400-tonnes quota this year (there is, after all, only six weeks left to go). Net sales now amount to roughly six tonnes from signatories, but we should also take account of the IMF disposals. Following 212 tonnes of off-market transactions, the IMF has been letting gold flow reasonably steadily into the open market. While officials at the IMF and the ECB have not specifically said that IMF sales would form part of the CBGA3 sales, central bank-speak suggests that the IMF is effectively taking up un-used quota from other CBGA3 signatories. GFMS Ltd refers in its "Gold Survey 2010" to "the unwillingness of the four largest bullion holders within the group, namely Germany, France, Italy and Switzerland, to embark on any large scale sales programmes". France and Switzerland have already reduced their holdings, while Germany is looking to sell only small volumes this year.The IMF sales programme and the rationale behind it is well documented (see for example IMF sales - a little context). Of the 403.3 tonnes originally earmarked for disposal, the Fund has sold 200 tonnes to India, ten tonnes to Sri Lanka and two to Mauritius, leaving 191.3t available. Sales into the open market since then have been (based on reported holdings figures) as follows:Total over February - June, 71 tonnes, leaving 120.3 tonnes for disposal. The rate of disposal to date suggests that the whole programme could be complete by the end of this calendar year (assuming an average sale rate of 17 tonnes per month).While the official sector overall is therefore likely to be a net seller into the open market this year, with up to 190t coming from the IMF, national central banks, taken as a group, are likely to be net buyers. Next year should see the official sector showing as a net source of gold demand rather than supply.Furthermore quite apart from outright sales and transactions, the actions of the Bank for International Settlements in December and in the first quarter of this year in taking gold as collateral from commercial banking counterparties (the has been no substantive change in reported BIS gold holdings since the end of March) is an iteration of gold’s role as the "asset of last resort" in times of stress. It gives more public backbone to gold’s role as an anchor within the financial sector, which stems itself from gold’s international impartiality and its associated ability to mitigate risk. CBGA3 sales may have resumed, but any further volume is likely to be small.