Koos Jansen
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Koos Jansen
Posted on 19 Nov 2014 by

Why Did European Central Banks Sell Gold?

In 1991 the Dutch central bank (DNB) held 1,700 tonnes in official gold reserves, currently they have 613 tonnes – of which 67 tonnes are stored in Amsterdam, 300 tonnes at the Federal Reserve Bank Of New York (FRBNY), 123 tonnes at the Bank Of England (BOE) and 123 tonnes in Ottawa. The exact locations of the Dutch gold was first disclosed after a member of The House Of Representatives, E. Irrgang (party: SP), officially asked about the details of the Dutch holdings at the Secretary Of The Treasury, J.C. de Jager, in 2011 in the heat of the Eurocrisis. Reading back the answers from de Jager, I noticed some remarkable answers. I translated a few snippets. Question by Irrgang, answers by de Jager:

Question 1: Has the DNB leased any of its gold holdings, if so, to whom?

Answer 1: DNB has stopped all gold leasing activities in 2008.

Question 6:  Can you confirm that since 1991 DNB has sold 1,100 tonnes of the 1,700 tonnes it owned…

Answer 6: Since 1991 DNB sold 1,100 tonnes. At the time DNB determined that from an international perspective it owned a lot of gold proportionally. It decided to equalize its gold holdings relative to other important gold holding nations

This last two sentences caught my attention, it  could imply two things:

  • the DNB sold gold to lower its holdings in order to be on par with other important gold holding nations.
  • the DNB sold gold to redistribute gold among central banks around the world proportionally to the size of their economy.

In a report from the DNB, released in  2010, titled Money and Gold we can read some comments of the DNB on their sales:

Screen Shot 2014-11-19 at 8.16.49 AM

Selling In Secret

In utmost secret the Dutch Central Banks sold it first gold tranche in 1992: 400 tonnes. The proceeds were invested in US dollars and Deutsche Marks. “Gold lying idle in the vaults doesn’t yield” was thought. In those years the gold price was dropping…. In 1996 the next tranche was sold, this time it was 300 tonnes. Again sold in utmost secret.

Selling By Agreement

Little by little the DNB is selling gold. Not too much at once or the gold market could be disrupted. This threatened to happen in 1999 when the Bank Of England (BOE) suddenly announced to sell a large part of their gold reserves. Panic in the gold market was the result.

DNB’s statement “Gold lying idle in the vaults doesn’t yield” is not accurate as de Jager informed us the DNB was leasing some of its reserves up until 2008.

Shortly after the BOE’s sales in 1999, all European central banks collaborated in a program called  the Central Bank Gold Agreements (CBGA), or the Washington Agreement On Gold, to jointly manage gold sales. The official reason for the CBGA program was to coordinately allow central banks to sell some of their obsolete gold reserves for higher yielding reserves (US treasuries).


Central Bank Largest Sellers

However, were the CBGA sales perhaps done for the same reasons de Jager mentioned above? To equalize gold holdings around the world?

In 1999 gold analyst George Milling-Stanley from The World Gold Council stated the following about the Washington Agreement On Gold:

Central bank independence is enshrined in law in many countries… It is worth asking why such a large group of them decided to associate themselves with this highly unusual agreement…

Koos Jansen
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  • alan goldspan

    FOFOA has written a lot of “Washington Central Bank Agreement On Gold” analysis, based loosely off Another/FOA remarks. Can recommend him as my number one HQ gold analyst. Keep wondering (reading your Tweets on CBs and gold standards) whether you ever studied those erudite FOA/FOFOA works in the depth behooved.. ;)

    • KoosJansen

      Not in depth. I read him every once in a while. Prolific writer.

      What’s his take on CBGA?

      • alan goldspan

        There is no primary article on CBGA by him, rather its scattered throughout a large variety of articles but the main interpretation is that ESCB members telegraph through this agreement starting in 99 and renewed ever since: “now that the EUR is launched, we are no longer helping the old USD paradigm of fighting gold as the competitor/enemy outright, thus gold sales are limited to reasonable and predictable bounds and most importantly lending/leasing schemes are wound down rather than continued or rolled-over”. This relates to the significance of ECB and ESCB members marking their physical reserves to market quarterly, whereas Fed/Treasury have “monetary gold” on the books valued at $42 still. Which moreover signifies to the rest-of-world that “this young currency seeks to (A) stand side-by-side physical gold as the ultimate store-of-value par excellence and (B) only seeks to excel in the medium-of-exchange and unit-of-account roles”, because the USD model of using debt/IOUs as store-of-value is destined to at best perform badly in real terms, and more likely result in a collapse-of-confidence.

        Really the message is “gold will not be lent”. As in: for banking and lending, we have unbacked fiat today, so lets not go down the same path of the old gold standards, by declaring gold currency (aka bankable and lendable at interest) already opening the door to fraudulent fractionalizing.

        By the way, the other notion since “Another” was that central bank “sales” are at the same time usually also central bank “purchases” and that either BIS or IMF act as “inter(central)bank” market makers. So unlikely to flood physical onto private markets, which as we all know wouldnt affect the “paper price” a whole lot anyway ;)

        Hard to compress it all in a short paragraph. Ultimately it all boils down the past and future role of USD as global reserve. Everything is connected to that, no other currency or country seeks to “really” replace that experiment. Let gold do job it can do best and the USD never did as well as hoped: store value and cross-value currencies against real-world wealth and each other. But let “modern digital currencies” do the job they perform exceedingly well as unit-of-account/media-of-exchange.

        Best I can muster right now

        • alan goldspan

          That being said, while not stating it outright this is entirely compatible with the quite likely scenario of CBs stealthily and steadily yet slowly “mutually rebalancing” gold holdings behind the scenes to pre-empt the inevitable day when their trillions of USD “reserves” no longer represent a lot of “real wealth” — without (if possible & as long as) rushing in said day prematurely.

      • Joseph Bloe

        Ahh that explains a lot. I always assumed you were actually reading FOFOA articles all these years you’ve hung out at his blog. I could never reconcile that assumption with your repeated and deepening ties with mainstream “gold bugs” and aligning yourself with all the nonsense that goes along with that – ie. the gold price is manipulated-, The FED is keeping Zee german gold!!, etc etc ad nausium. I know you are just trying to attain mainstream status for yourself but if you are at all serious in understanding the gold market (and money and wealth for that matter) you’d be well advised to read that stuff in depth because you ask questions all the time that FOFOA and others already thought hard about and came up with real solid theories and answers as to what’s really happening all these years in front of our eyes. Much respect, but you seem to have gotten star struck lately and perhaps wanting the fame of being a gold blogger who knows so and so and emails so and so, yet you end up trumpeting the same old nonsense- i.e. physical withdrawals at SGE matter. We all have to eat and you can’t eat your gold so if this is what you gotta do to get a paycheck, so be it. peace Koos.

        • carpenterfisherman

          Hello, Barclays?

          The London Fix is gone.

    • rowingboat

      I used to post on the Kitco gold forum in 1997 when ANOTHER started posting. Then Friend of Another (F0A) then Friend of Friend of Another (FOFOA). How about friend of friend of friend of friend of another? FOFOFOFOFOFA? Legendary status by association! The gold community surely is a comedy act sometimes….

      • alan goldspan

        “Legendary status by association” .. not so, in my book FOFOA has surpassed them both in recent years in quality, quantity and depth. That said, FOA as “Trailguide” was brilliant for his time; only Another alone/by himself never impressed me all too much. He also posted with a distinctly different purpose than the enlightening/analysing/interpreting ones of foa/fofoa ;)

  • http://www.exvo.com Danny de Wit

    Seems to me it could be that the leased gold was gone and then the best way to deal with that is accept fiat-currency in return, because there was not much else the Dutch government could do about it.

  • lorkoos

    Interesting. I have long wondered if central bankers are colluding to allow more equitable distribution of gold among different nations, prior to what will likely be a reset of the world’s financial system at some point in the next ten years. Low gold prices help countries like China play catch-up to western nations such as the US, Italy, Germany, etc who have large amounts of gold in proportion to their populations. War would be inevitable without some equality of wealth among the super-powers, in the event of a severe global financial collapse, .

  • http://herrborjesson.wordpress.com Börjesson

    You might find this article interesting, Koos:
    Central Bank Gold Leasing

    Victor the Cleaner, who wrote it, is basically a FOFOA disciple, although they differ in the details of what they think the new system will look like (Freegold vs FreeFiat). But their analysis of what has happened so far and is happening now is more or less the same, as far as my limited understanding can tell. VtC is in some regards better than FOFOA at clearly elucidating the whys and wherefores of it all, so he’s well worth following, in my view.

    I’m pretty sure that he shares your view that Western central banks have deliberately been spreading the gold around in the last decade or so, letting China and others get a fair share, so that the new system will start out at a reasonably level footing. (Or at least, that’s the impression I’ve gotten from his Twitter, though I can’t point to any specific tweet saying as much.)

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