Commodities | Mar 14 2007
By Greg Peel
Yesterday the European Central Bank system reported 0.5t (16,000oz) of gold sales for the week. This small amount indicates the continuation of a trend begun last year, in which the European central banks are selling less than their allocated quota under the Washington Agreement.
Blanchard & Co’s Neal R. Ryan surmises that if the trend remains intact sales will fall 8-9 million ounces short of the 2007 quota instead of the 6-8 million ounces previously expected. This “bodes well” for the gold price, notes Ryan, although he suspects a price above US$700/oz would probably trigger further sales.
One simple fact of the matter is that European central banks are simply running out of gold to sell, or at least running out of that which they are prepared to part with at any price. Germany’s Bundesbank has reiterated that it will not sell any gold in 2007, and probably not in 2008 either.
France appears to be about the only keen seller, now that Spain and Portugal seem to have shut up shop as well.
Outside the Washington Agreement it’s a different matter all together. Central Banks are buying, not selling. The World Gold Council yesterday updated official activity and noted purchases from Russia (17.3t), Belarus (6.2t), Kazakhstan (7.6t) and Greece (3.8t) within the last 3-6 months. Another (unnamed) ECB bank or banks added 14t in February alone.
So what are we doing down here below US$650/oz?
Ryan’s take on matters is that the sharp price decline – sparked by a rush to cash after the Shanghai Surprise – cannot continue, even if equities fall further. Moving into the US dollar is particularly tenuous. Eventually the opposite will be true as gold investment is again recognised as a safe move. Supply/demand fundamentals are currently dictating a higher gold price.
Ryan sees a buying opportunity.