New Central Bank Gold Agreement Signed

Source:

"If the IMF disposes of its gold into the free market, sales will be done gradually and under the auspices of CBGA3. . ."

The third CBGA will be implemented on 27th September with the same signatories as those of the second CBGA. The IMF is not a signatory, but the statement issued by the European Central Bank notes "The signatories recognize the intention of the IMF to sell 403 tons of gold and noted that such sales can be accommodated within the above ceilings." The use of the word "can" is clever, as it allows flexibility.

The ceilings in question revert to the 400-tons level that was promulgated under the first agreement (1999 - 2004). The full statement reads as follows:
  1. Gold remains an important element of global monetary reserves.
  2. The gold sales already decided and to be decided by the undersigned institutions will be achieved through a concerted program of sales over a period of five years, starting on 27 September 2009, immediately after the end of the previous agreement. Annual sales will not exceed 400 tons and total sales over this period will not exceed 2,000 tons.
  3. The signatories recognize the intention of the IMF to sell 403 tons of gold and noted that such sales can be accommodated within the above ceilings.
  4. This agreement will be reviewed after five years.
The reduction in the ceiling should not be a surprise as the 500-ton annual quota for CBGA2 has been nowhere near approached. By the end of July '09, total net sales from the signatories to CBGA2 amounted to 1,882 tons (of which just 140 tons had been sold in the fifth YTD of the program), leaving a shortfall of up to 618 tons.

A five-year target of 2,000 tons for the next program thus makes perfect sense and may well be higher than required, especially as the attitudes towards gold of the official sector have shifted substantially since the start of the CBGA programs.

If the IMF disposes of its gold into the free market, sales will be done gradually and under the auspices of CBGA3 (or even its successor) and the IMF will make use of quotas allocated to signatories that have no intention of using them to the full.

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