Germany: No Gold Sales in 2008 or 2009, and Why? So What's Left to Sell?

Source: Julian D.W. Phillips, Gold Forecaster - Global Watch  (10/12/07)

Some prominent commentators on the gold market are giving the impression that Germany and possibly Italy, will eventually be sellers of their gold, although not in 2008, even stating that the Bundesbank is ‘not opposed to such sales’...These commentators even say, that German gold sales will eventually begin. We could not disagree more strongly!


Some prominent commentators on the gold market are giving the impression that Germany and possibly Italy, will eventually be sellers of their gold, although not in 2008, even stating that the Bundesbank is ‘not opposed to such sales’, but simply need to agree the purpose for which the proceeds will be used. These commentators even say, that German gold sales will eventually begin. We could not disagree more strongly!

The German Bundesbank under the governorship of Axel Weber did not agree to the purpose for which the government intended to use the proceeds, when they pressed the Bundesbank to sell gold, which is correct while they made it clear that they have not made gold sales ‘verboten’, as a matter of policy. But don’t confuse broad policy with investment decisions.

We believe that they are opposed to gold sales as Axel Weber clarified when he stated, “Gold is a useful counter to the swings of the $”. He clearly agrees with the fact that gold is a fine counterweight to currencies in the reserves of a nation. More so, since he made that statement gold has performed wonderfully whereas the $ has performed abysmally, thus confirming the correctness of his investment policy.

The matter of what to do with the proceeds was not the issue that divided the Bundesbank and the government it was the independence of the Bundesbank regarding policy decisions, a far more important issue. What to do with the proceeds is clearly spelt out in the rules governing the Bundesbank. They are to be retained by the bank in their reserves. The income on those is dispersible, but not the capital. As part of the nation’s reserves they are not there for research or social program or for any political whim, they are reserves of the nation for a rainy day. [And that day is getting closer by the day too]

Indeed, for the government to instruct the Bundesbank what to do with the proceeds, they have first to enact a new law to do so, which must gain the majority agreement of the Reichstag, a seemingly unlikely possibility. This has to precede any gold sales imposed on the Bundesbank by the government.

Meanwhile right now, the Bundesbank President can, if he so chooses to, sell Germany’s gold any time he wishes and keep the proceeds in the bank. But he has made it clear he chooses not to, as is confirmed by the announcement for 2008 on gold sales an investment policy decision he has made, without being influenced by government. We believe he will make the same announcement in 2008 covering 2009. In other words Germany will not sell its gold because it would be a bad decision to do so, so Bundesbank President, Axel Weber believes.

Italy to sell? As to Italy being a possible seller, the Banco d’Italia used simple uncomplicated words when last asked if they would sell. They said, “We have no plans to sell gold”. Little there to confuse one?

Yes, the Italian Parliament did approve a plan allowing for the sale of gold to reduce the National Debt, but as the E.C.B. stated very strongly, it is they who make that decision not Italy. Again the transfer of assets from the Central Bank to the government probably would not be allowed under the existing Eurozone agreements.

Swedish gold sales – now we know what lies ahead in the next two years. In a new announcement, Sweden said it plans to sell up to a further 10 tonnes of gold by the end of September 2008 and invest in foreign exchange reserves. Clearly the purpose is simply a statement of confidence in currencies and not a wise investment decision.

...this tonnage is within the amount it originally said it would sell. With 25.6 tonnes still to sell from that announced amount we now know that it will sell up to 10 tonnes in the year to September 208 and 15 tonnes in the final year of the agreement, September 2009.

No more Spanish sales? Spain was the largest seller this year with 165 tonnes, but Spanish central bank governor Miguel Angel Fernandez Ordonez said that the Bank of Spain plans no more significant gold sales in 2007, which was the bulk of its planned bullion disposals. They have 281 tonnes left in their reserves so could possibly sell another 100 tonnes? If so the total to sell rises to 785 tonnes in the next two years.

Sales for the remaining years of the C.B.G.A. If this can be interpreted that Spain will sell less than this amount, possibly far less, then we can guess the total left to sell for the balance of the two years of the Agreement at less than 100 tonnes? If this is near the mark we can expect the total of 785 tonnes of gold to be sold by the entire number of the signatories to the Central Bank Gold Agreement in the next two years. This would result in around 400 tonnes per annum, 100 tonnes less than the ‘ceiling’ of 500 tonnes, for each of the two remaining years. Such a drop in the annual sales will lace upward pressure on the gold price.

As we said last week, the beginning of the C.B.G.A. third year [commencing on the 27th September] could see the E.C.B. sell its annual allotment over the first one or two months, but this should not cap the gold price at this a highpoint in the year’s demand for gold. Switzerland will sell vigorously as it has done of late. We cannot be sure until next week if this is happening now.

So just how could gold sales increase beyond the balance of announced sales? Well, the sellers who do so unannounced can add to this total and Spain is a likely candidate [possibly up to 100 tonnes of their 281 holdings?] but an unwise one selling to pay off debts. Because Belgium has not sold any gold since the first year of the agreement, we do not think Belgium will sell more.

Apart from that and in line with the intended transparency of the Central Bank Gold Agreement, the remaining signatories will make an announcement to sell well ahead of doing so. So we do not exclude further announcements.

But, if these announcements don’t come, and sales stay at high levels now to reach the 500 tonne ‘ceiling’ this C.B.G.A. year, they will have as little as 185 tonnes left to sell in the final year of the agreement.

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