Here is UBS' interpretation of the new Central Bank Gold Agreement announced earlier today.

Gold hanging tough - VHF

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ECB Announces CBGA3

August 7, 2009 3:50:51 AM

UBS Metals Daily - John Reade

The ECB announced this morning that the Central Bank Gold Agreement would be extended for another five years. CBGA3 differs from the current agreement, which expires Sept. 26, in that the annual ceiling is falling to 400 tonnes, from 500 tonnes currently.

The IMF - which plans to sell 403.3 tonnes of gold - has not signed this agreement, but if the IMF sale plan is approved it could be accommodated within the 2000-tonne five-year ceiling, the ECB said. Our initial thoughts are that this is modestly positive for gold, for four reasons:

1) That the agreement has been signed removes the small chance that European central banks would have dumped gold onto the market in an unconstrained manner.

2) The annual sales ceiling is lower. Note however that the signatories have not used the full ceiling for the past couple of years anyway, so this is only a small positive.

3) That the IMF's planned gold sale can be accommodated within the limits of CBGA3 shows the signatories' own disposal plans lie well under the full 400 tonnes per annum.

4) That the IMF has not signed leaves open the possibility that the Chinese, Russian or another central bank could buy the 403.3 tonnes of IMF gold in one go. If it had signed, then the IMF would not have been able to conduct this sale in one go, as the amount of the proposed disposal exceeds the total annual ceiling for all signatories.