By Jan Harvey
Friday, February 1, 2013
LONDON -- European central banks are unlikely to renew an agreement to
limit gold sales when their current pact expires next year, a leading gold
market consultant said, after selling evaporated over the agreement's
The amount of gold the region's central banks can sell in any given
period has been capped by a series of Central Bank Gold Agreements (CBGAs)
since 1999, after a spate of disposals by the official sector, including a
395-tonne tonne sale by the Bank of England, shook
up the bullion market.
But George Milling-Stanley, an independent consultant and former
managing director of government affairs with the World Gold Council, said he
saw little chance of signatories opting to extend a ceiling on bullion sales
for a fourth time.
"At this point the chances are pretty slim that there will be another
agreement," he said. "The real reason we got a third CBGA was
because the International Monetary Fund wanted to sell within the context of
an existing sales structure, rather than disrupting the market."
"Given that there is no prospect of IMF sales at this point that
need to be accommodated, my sense from the central bankers in Europe I talk
to is that no one has any interest in major sales at the moment."
Central banks moved from being net sellers of gold to net buyers on an
annual basis in 2010 for the first time since 1989. Gold buying from the
official sector rose to a 48-year high of 536 tonnes
last year, according to metals consultancy GFMS.
Much of that interest came from central banks in Asia and the
developing world, which traditionally held a lower proportion of their
reserves in gold than central banks in Europe.
At the end of 2008, South Korea held just 0.1 percent of its forex reserves in gold, against a 64 percent weighting in
German reserves and 62 percent weighting in Italian holdings.
Some analysts have suggested that letting any agreement lapse would
send an unwelcome signal to the wider market that more bullion sales from
Europe's gold-heavy central banks may be on the way.
Milling-Stanley disagreed. "The only thing that would make them
sign an agreement was if they felt it would be market disruptive not to, and
I don't think that at this point it would," he said.
"I am hopeful that the 15 years in which we've had this structure
in place has educated the market into the belief that if the central banks
wanted to sell gold, they have a structure in place to do so, and that if
there isn't an agreement, it's because central banks don't want to sell
gold," Milling-Stanley said.
"If the central banks made that clear to the market ... I don't
think it's going to be disruptive."
Central bank buying was one of the factors that sent gold prices to
record highs at $1,920.30 an ounce in late 2011. Prices have since fallen
back, however, and have struggled to break back above $1,800 an ounce in the
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