Central Bank Gold 101

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What we are seeing presently is that Central Bank sales have increased considerably without the bottom falling out of the market as has been the case in the past.

It is our firm belief that the reason we have seen the gold market fail to take the $700 level over the past week is due to the continued increase in Central Bank gold sales, specifically those out of the European Central Bank (ECB) system.

Central Banks around the globe can influence gold prices via two methods. CB's can make outright sales and purchases of gold, or CB's can loan/swap gold into the market or call those loans/swaps back into their reserves...In the past, increased sale levels have had a significant impact on the market, most recently when 80 tonnes were sold into the market over 4 weeks in May of 2006, we saw prices fall from $730 per ounce and test the $575 level. To a lesser extent, we saw +50 tonnes of sales hit the market in September of 2006, sending prices from $605 to $565 per ounce. What we are seeing presently is that sales have increased considerably without the bottom falling out of the market as has been the case in the past. The market is experiencing some price weakness as it struggles to continue to digest these massive sales, but the price has continued to trend higher in the face of these increases. This is a watershed event for the market and investors need to understand what this means to them. The days of massive bank sale increases tanking the market are coming to a close...

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