Germany seeks option to sell 600 tonnes of gold
By Kevin Morrison in London
Published: January 21 2004 23:04 | Last Updated: January 21 2004 23:04
news.ft.com
The German central bank on Wednesday requested an option to sell 600 tonnes of gold, providing the foundation stone of an expected deal designed to underpin the price of bullion.
The Central Bank Gold Agreement, likely to be signed in the spring, could help to prolong the two-year bull run in gold prices.
The Bundesbank announ- cement is the firmest endorsement that it will be a seller of gold under a new pact, which would replace an existing five-year agreement that expires in September.
However, the shape of a renewed accord will depend on France and Italy, which are the second- and third-largest bullion holders of the 15 European banks that formed the first agreement. The banks involved represent the 14 European Union member states, excluding Greece, and Switzerland.
The sensitivity of discussions on the renewal of the 1999 agreement was underlined yesterday by the refusal of the Bank of France to comment on whether it favoured the Bundesbank proposal. The French central bank has been traditionally hostile to drawing down bullion stocks.
If Germany exercises this 600-tonne option, it will be one of the largest sellers under the new pact, which is likely to see an increase in the amount of gold sold each year, from 400 tonnes at present to 450 tonnes.
This makes a total of 2,250 tonnes of gold to be sold over the five-year period running to 2009.
Germany's decision is in contrast to its stance of no gold sales under the existing pact from its 3,440-tonne gold stockpile, the largest holding among the 15 signatories.
The 3,440 tonnes excludes about 180 tonnes pledged to the European Central Bank when it was created. The 12 eurozone banks have pledged more than 760 tonnes of gold to the ECB, which represents 15 per cent of the bank's total reserves.
Gold traders ignored the Bundesbank announcement, with the gold price falling $2 to $410.50 a troy ounce, or $20 lower than its 15½-year high reached two weeks ago.
The central bank gold pact has successfully helped stabilise gold prices by forming an orderly queue for central banks to sell bullion holdings. The 1999 agreement followed random bullion selling by central banks.
In 1999, Gordon Brown, the British finance minister, surprised bullion markets by announcing that the Bank of England planned to sell more than half of its gold holdings. This caused the gold price to sink to a 20-year low of $252. Since then the gold price has risen more than 60 per cent, largely aided by a weaker US dollar.
Other sellers of a renewed gold agreement are expected to include Switzerland, the Netherlands and Portugal, which all sold gold under the original pact. Switzerland will have sold 1,275 tonnes of its 1,300 tonne target by the end of September.
Central bank gold holdings play a diminishing role in the bullion markets, as they are about a quarter of the world's gold in circulation. That compares with more than 50 per cent of gold circulation in the early 1960s. Additional reporting by Tony Major in Frankfurt and Robert Graham in Paris |
