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The End of the Central Bank Gold Agreement

The fourth Central Bank Gold Agreement (CBGA) expired on 26th September 2019. Prior to that, the European Central Bank and 21 other central banks (19 Eurozone members plus Sweden and Switzerland), that are signatories to the fourth CBGA, announced that the Agreement will not be renewed, notes Charles de Meester, founding partner of Metals Focus,, one of the world’s leading precious metals consultancies, writing in the Precious Metals Weekly.

To put it into perspective, the first 5-Year CBGA was signed in September 1999 in order to coordinate the planned gold sales by various central banks in Europe. It was renewed three times, in 2004, 2009 and 2014, gradually moving towards less stringent terms. During the first and second Agreement, cumulative sales by CBGA signatories exceeded 3,800t. Not only did the group contribute the overwhelming majority of global central bank sales, these disposals also made the official sector an important source of gold supply over 2000-09, says de Meester.

Since the third CBGA, however, sales from the group have fallen notably. Germany, for instance, was the only signatory that released a meaningful amount of gold. Even so, with roughly 4-5t per annum, the bullion sold by the Bundesbank was entirely related to the German commemorative coin programme. (The 191t sold by the IMF on-market in 2010 was accommodated under the third CBGA, though strictly speaking the IMF was not a CBGA signatory.) Such a dramatic decline also resulted in the official sector swinging to become a net bullion buyer in 2010.

Since then, central banks in aggregate have been a persistent net buyer, with the 656t in 2018 the highest annual purchase since the collapse of the Bretton Woods system in the early 1970s.

This shift in official attitudes towards gold in Europe reflects several factors. First, after heavy disposals over 1999-2009, gold’s share of total reserves had already fallen to a desired level for some involved in high-profile diversification of their portfolios.

Second, the economic crisis and then the European sovereign debt crisis since 2008 saw central banks within Europe reluctant to embark new gold sales programmes in order to avoid market disruptions. Finally, for countries where there had been political pressure to sell gold to fund government deficits (such as Italy), current legislations mean that such sales are unlikely to take place in the foreseeable future.

Looking ahead, these factors are likely to remain in place, which will should curtail gold sales from the euro area for some time to come. Moving outside the Eurozone, a desire to diversify reserve portfolios will continue to justify higher allocations to gold, especially for countries that have a low share of bullion in their official reserves. Ongoing geopolitical risks will also help to boost the appeal of the yellow metal.


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