http://www.miningmx.com/news/gold_and_silver/central-bank-gold-sales-won%27t-hit-target.htm

Central bank gold sales won't hit target

Reuters | Fri, 07 Aug 2009 15:24
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miningmx.com] -- Gold sales under the new Central Bank Gold Agreement are unlikely to reach their full quota of 2,000 tonnes over the next five years, or 400 tonnes per year, the chairman of metals consultancy GFMS told Reuters on Friday.

The latest version of the CBGA, announced earlier on Friday, cuts the amount of gold the nineteen signatories of the agreement can sell each year by 100 tonnes, after sales under the existing pact fell well short of its 500 tonne quota.

A new agreement will cover sales of 403 tonnes of gold already announced by the International Monetary Fund, though the fund itself is not a signatory. But GFMS' Philip Klapwijk said sales under the pact were still likely to be less than allowed.

"I would be very surprised if there were 2,000 tonnes of gold to sell, or a willingness at this stage to sell that much," he said. "Excluding the IMF from the analysis.... I'm not convinced there are 1,600 tonnes of sales ready to go."

Nonetheless, the continued existence of the CBGA -- originally signed in 1999 to bring stability to the gold market -- is likely to lend some support to prices, he said.

"The fact they've reduced the limit to 400 tonnes from 500 is positive (for the gold market), and the fact that they've said sales will continue to be through some sort of controlled mechanism will give the market a degree of certainty," he said.

The main gold holders covered by the CBGA are Germany -- which according to the World Gold Council has the world's second largest gold reserves after the United States at 3,412.6 tonnes -- Italy, France and Switzerland.

PLANNED SALES

The Bundesbank had no comment on its sales plans on Friday, pointing to its past practice of deciding every autumn on its gold holdings for the following 12 months.

The Swiss National Bank said on Friday it has no plans to sell any gold holdings in the foreseeable future.

Klapwijk said the most obvious sources for further gold sales were smaller members of the CBGA and the European Central Bank itself. The ECB has had a tendency to keep its gold reserves close to 15 percent, he said.

"I can imagine, if euro gold prices go higher and the ECB sees that gold gets to a certain percentage of reserves, they will be a natural seller for that reason," he said.

Euro-denominated gold has nearly doubled in value since the last agreement was signed in September 2004 to around 670 euros an ounce. The price of spot gold has climbed to some $960 an ounce from around $410 an ounce in the same period.

Klapwijk said the omission in the latest version of the CBGA of references to gold leasing and the use of gold futures and options also "opens up some interesting possibilities."

"There is a reasonably convincing case for central banks with large gold holdings which under certain circumstances they might be prepared to sell to try and generate some sort of income on those holdings through the use of derivative instruments," he said.

"This has opened up the possibility for European central banks to start using these derivative instruments."

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