Jewellery News, Central Bank Gold Agreement, HSBC


LONDON, August 8, 2009 – A group of central banks in Europe have agreed to extend a cap on gold sales for another five years, the European Central Bank said.
The Frankfurt-based ECB said the overall cap on sales in the next five-year period of the Central Bank Gold Agreement (CBGA) would be reduced to 2,000 tonnes from the present 2,500 tonnes.
Annual sales would not exceed 400 tonnes.
Gold prices rose shortly after the announcement, and later eased back to stand at $957.30 an ounce late on Friday, August 7.
The International Monetary Fund’s intention to sell gold could be included within the agreement.
“The signatories recognise the intention of the IMF to sell 403 tonnes of gold and noted that such sales can be accommodated within the above ceiling,” the ECB said in a statement.
European central banks first agreed to cap gold sales in 1999, an agreement which has been a significant factor driving a rally in the price of gold in recent years.
“Gold remains an important element of global monetary reserves,” the ECB said.
The new agreement starts on September 27, immediately after the current agreement expires.
J.P. Morgan said in a note it expected sales from CBGA signatories to be limited and not to destabilize the gold market in the medium or long term.
HSBC said in a research note this week that gold is deriving support from inflation-hedge buying and U.S. dollar weakness as investors react to lax monetary policies.
Abundant scrap supplies and weak jewellery demand have freed up bullion for investment, and this may restrain rallies, HSBC said.
“For silver, we expect higher mine supply and ongoing weak industrial and jewellery demand,” the bank said.
“A modest recovery in auto sales should help tighten platinum balances as producers restrain output; dwindling Russian stocks could buoy palladium.”