Central banks do not reach a new agreement on gold sales

The ECB and all other central banks that held the fourth Central Bank Gold Agreement (CBGA) signatories see no need to conclude a new agreement. Well Confirmed The central banks that signed the last declaration reiterated that gold plays an important role in the world's monetary reserves. They also said that there are no plans to sell significant amounts of gold.

The first agreement was signed in 1999 to coordinate planned gold sales by various central banks. It set a limit on the sale of gold, with which central banks made their intentions known to the market. In this way, it was prevented that too much gold would come onto the market in a short period of time.

'Gold market is mature and liquid'

This central bank agreement, which was concluded in 1999, was for a period of five years and was finally renewed three times, namely in 2004, 2009 and in 2014. In the latter, no limit was agreed upon, for the simple reason that central banks no longer put gold on the market. In fact, since 2010, central banks worldwide have been net buyers of the precious metal again.

The ECB writes in a explanation On its website that the gold market has grown significantly in size since 1999 and that the liquidity of the gold market has also increased. Below is the full press release from the central bank.

The first CBGA was signed in 1999 to coordinate the planned gold sales by the various central banks. When it was introduced, the agreement contributed to balanced conditions in the gold market, by providing transparency regarding the intentions of the undersigned. It was renewed three times, in 2004, 2009 and 2014, with progressively less stringent conditions.

Since 1999, the global gold market has developed significantly in terms of maturity, liquidity and investor base. The price of gold has risen about fivefold in the same period. The undersigned have not sold significant amounts of gold in nearly a decade, and central banks and other official institutions have generally become net buyers of gold.

The signatories affirm that gold remains an important component of global monetary reserves, as it continues to offer benefits of diversification and because none of them currently has plans to sell significant amounts of gold.

The fourth CBGA, which expires on 26 September 2019, was signed by the ECB, the National Bank of Belgium, the Deutsche Bundesbank, the Eesti Pank, the Central Bank of Ireland, the Bank of Greece, the Banco de España, the Banque de France, the Banca d'Italia, the Central Bank of Cyprus, the Latvijas Banka, the Lietuvos bankas, the Banque centrale du Luxembourg, the Central Bank of Malta, the Dutch Central Bank, the Oesterreichische Nationalbank, the Banco de Portugal, the Banka Slovenije, the Národná banka Slovenska, the Suomen Pankki, the Sveriges Riksbank and the Swiss National Bank.

Gold as an important reserve

With this new statement, central banks confirm that gold still plays an important role for them as a monetary reserve. They also make it clear that they will no longer sell large amounts of gold. It is an important statement, since the precious metal no longer fulfils a monetary function within the current system.

As the chart below shows, European central banks have sold large amounts of gold since the beginning of this century. That quickly diminished when the credit crisis broke out in 2008. After that, central banks of the various European countries decided not to put any more gold on the market.

European central banks have almost stopped selling gold since the crisis (Source: ECB)

Monetary reset?

The big question is to whom the European central banks sold the gold. It is difficult to find figures for this, but there is a good chance that these gold reserves have ended up directly or indirectly in emerging economies. Countries such as Russia and China had limited gold reserves at the beginning of this century and it is suspected that some of the European gold ended up in these countries and in other emerging economies.

The underlying idea is that in this way, central banks redistribute their gold reserves in proportion to the size of their economy. In this way, European central banks increase support for a possible reset of the international monetary system.