St. LOUIS () -- The deadline of 26 September 2007 for annual Eurosystem central bank gold sales came and went with seemingly little notice in the market. But as gold prices continue to flirt with 28-year highs, news that signatories failed to hit the sales quota again this year could help contribute to gold's much-anticipated march to $800.
Matthew Turner, commodities analyst at Virtual Metals, puts gold sales at 475 tonnes, once again short of the 500-tonne quota per the Central Bank Gold Agreement (CBGA) of 27 September 2004.
"This wouldn't include forward sales, but there's zero evidence of any of those," he added.
In 2006, central banks ended the agreement year well under the 500-tonne quota, with most sources estimating sales at about 400 tonnes. For 2008, Turner forecasts banks will conclude sales short of quota again unless a substantial amount of unannounced sales emerge.
In the week ending 28 September 2007, the European Central Bank (ECB) reported gold sales with the Eurosystem in the amount of EUR 17 million (US$24 million), representing 1 tonne. One central bank sold gold reserves while another purchased gold coins. This concluded gold sales for the agreement year at a reported 350 tonnes.
However, some sales made during the year have yet to be reported, according to the World Gold Council (WGC). As at mid-September, the WGC calculated total gold sales, reported and not yet reported, to be about 450 tonnes - still 50 tonnes below the quota for the year. Virtual Metals concluded that 25 more tonnes were sold in September.
The WGC has sales statistics for Switzerland from June to August, when 82.1 tonnes were sold. The agency said at the time that if Swiss sales in September continued at broadly the same pace as in July and August, total selling by mid-September would have amounted to 455 to 460 tonnes.
The Swiss recently reported sales of 113 tonnes between 15 June and 26 September 2007, with 31 tonnes in September alone. On 14 June 2007, the that it would be adjusting the composition of its currency reserves and would sell a total of 250 tonnes of gold by the end of September 2009.
Sweden said it plans to sell up to 10 tonnes of gold by the end of September 2008 and invest in foreign exchange reserves. But the bank currently holds only 150 tonnes of gold reserves, and has sold only 35 tonnes since the Central Bank Gold Agreement was implemented in 2004.
Spain was the largest seller this year with 165 tonnes, but it will not sell any more gold in 2007. Likewise, the ECB has concluded gold sales for 2007, after of 60 tonnes in the agreement year. France has sold 99 tonnes this agreement year, but has not said how much more will be sold in 2007.
Turner said Switzerland will be a major seller in 2008, after selling about 34 tonnes a month on average to end this agreement year, and also France and Sweden. He included more sales a possibility from the ECB, Austria, Portugal and Spain. Germany and Italy remain as potentially major wild cards for 2008.
"But I'm not sure we'll see 500 tonnes [next year] unless either Germany or Italy sells ... or France accelerates its sales to give them some room," said Turner.
Germany has announced no sales will take place in 2007 and has yet to decide about 2008, while Italy has sold no gold in the life of either agreement year from 2004, but recently said it might to pay off debt. Germany is the world's second largest gold holder with about 63% of its foreign exchange reserves in gold at 3,400 tonnes, while Italy is the fourth largest with some 62% of its forex value in gold at about 2,450 tonnes.
Not mentioned, however, is the International Monetary Fund (IMF), which currently holds 3,217 tonnes of gold. In , an esteemed group of eminent persons, including former Fed Chairman Alan Greenspan and current President of the European Central Bank Claude Trichet, recommended that the IMF sell up to 400 tonnes of gold as means to finance ongoing costs. The IMF is forecast to loss of about $102 million this fiscal year.
In a recent interview with the French daily Le Monde, Dominique Strauss-Kahn, who was chosen last week to succeed Rodrigo Rato as IMF chief a month from now, said central bankers do not appear to oppose sales of IMF gold. However, it remains to be seen whether its 185 member countries will agree to part with their gold reserves.
With gold prices at 28-year highs near $730/oz, central banks could theoretically begin selling more gold to take advantage of quick profits. However, most of the previously announced sales campaigns by large banks are nearing an end, so the wild card in this equation for next year continues to be Italy and Germany.