Central Bank net gold sales show huge drop in first half 2009

A report by GFMS for Societe Generale suggests the volume of Central Bank gold sales this year is likely to be among the lowest on record.

LONDON - 

 In a report released Monday, precious metals consultancy GFMS, for Societe Generale, looked at the recent rate and volume of gold sales from official sources and concluded that in the first half of the current year the net sales volume was a relatively minuscule 39 tonnes - down a massive 73% year on year.  Indeed in the second quarter, GFMS estimates that banks were net buyers of gold after being net sellers in the first quarter.

In effect, the majority of these sales came from within the Central Bank Gold Agreement, with its signatories selling some 92 tonnes, but this was offset by net purchases from Central Banks and institutions in other countries which turned out to be net buyers of around 56 tonnes.  There were also a few tonnes of sales from banks outside the CBGA.  GFMS notes that all these figures may be subject to alteration due to the lag that often exists between Central Bank activity in the gold market taking place and it being identified.

The biggest sellers of gold in the period included France which had announced some time back that it would sell 600 tonnes over the life of the five-year CBGA, which ends on September 26^th.  France sold some 44 tonnes in the first five months of the year and it is likely, says GFMS, that it would also have sold a little more in June.  With a total of 576 tonnes of sales over nearly 5 years under the Agreement up until May that left only a further 24 tonnes to sell June to September.

The second biggest seller was the European Central Bank with 35.5 tonnes.

There are a few Central Banks which still have gold to sell under announced gold sales programmes, but these in total amount to very little, and GFMS reckons that in the second half of 2009 Central Bank sales will remain fairly low at around 100 tonnes which would mean that net official sector sales in 2009 overall, at some 140 tonnes, would be at the lowest level since 1994's trough of 130 tonnes.

On the proposed IMF sales of 403.3 tonnes GFMS points out that this still requires a deciding vote by Fund members.  While this is not expected to reverse the sales decision, the vote is not expected to take place until the final quarter of the year so it is unlikely that any IMF gold will come on to the market in 2009.  And, in any case when it does, the gold is to be sold in an orderly manner, probably within a renewed CBGA which is currently under negotiation. 

On China, which announced a 454 tonne increase in its gold holdings earlier this year, GFMS expects it to continue to be a net buyer in order to diversify its reserve portfolio away from the dollar.  However the consultancy rules out any direct, large scale purchases on the open market as these would, the report states " not only have a profound impact on the gold market but would also potentially place the value of its US dollar holdings under extreme pressure and, to put it mildly, ‘complicate' the country's relations with the United States, its largest trading partner.  Thus instead of more visible and highly sensitive transactions in the international market, we may see further discreet and relatively modest official purchases in the local gold market"

Overall, GFMS concludes that the official sector will remain an important focus for the market particularly given changing attitudes towards gold in a monetary context and global pressure for a fundamental change to the international financial system.

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