Jun 2, 2007

Blanchard's Neal Ryan on ECB's suspension of gold sales

Strike another off the list…

The ECB has stated this morning that they have sold 37 tonnes of gold in the last two months, but will make no further sales in the remaining four months of the CBGA fiscal calendar year. This is the type of news we have been waiting for because the majority of sales that have been swamping the market in the last three months have been coming from unannounced sources. The Bank of France has been a steady seller into the gold market, but that has been via an announced sales program, so completely expected. The ECB selling 37 tonnes at the Bank of Spain dumping a mind-boggling 80 tonnes (possibly more when that figure is updated for May), or 25% of their reserves, had been unexpected and thusly impacted prices considerably. I cannot underscore how important it is to understand how Central Bank activity, both expected and unexpected, affects the gold market. The great thing about that is, while they can impact the market a great deal via sales (or not selling), they're still running quite low on gold supplies and one day in the near future will simply be happy to sit pat on their remaining stock.

Again, we underscore the importance of how well the market has held up under this selling pressure, despite a sag in prices in the last two months. When we had sales that aggregated 95 tonnes over nearly three months enter the market in the Spring of 2006, the price and forward momentum in the gold market fell apart. This spring we had over 130 tonnes of aggregate sales into the market and the price has only fallen from $690-670. It's been frustrating to see the market struggle with the increased sales levels in a short time period, but as we have continued to pound the table about…these sales are drying up and will be short for the full year, while the price has not suffered as in times past. This is as bullish a signal I can pick in the market currently.

Let's also not forget, as these sales are disappearing off the market, we're still looking at the increasing likelihood of a major strike action in the largest platinum and gold producing country in the world. This is indeed going to be a much different summer than years past.


1 June 2007 - The ECB’s gold sales
Over the past two months, the European Central Bank (ECB) has conducted gold sales amounting to 37 tons of gold.
These sales are in full conformity with the Central Banks’ Gold Agreement, dated 27 September 2004, of which the ECB is a signatory.

Together with the gold sales of 23 tons, completed on 30 November 2006, the ECB has thus sold 60 tons of gold in the third year of the agreement, which started on 27 September 2006 and ends on 26 September 2007.

It is not the ECB’s intention to sell more gold in the current year of the agreement.


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