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Ronan Manly

Ronan Manly

Ronan Manly is a precious metals analyst with BullionStar whose blogs
often cover current themes including what's going on in the
London gold market and the gold activities of central banks.

By Not Renewing the CBGA, Central Banks in Europe Look Ready to Buy Gold

Last month, a BullionStar article titled “The Fifth Wave: A new Central Bank Gold Agreement?” brought your attention to the fact that the fourth and current round of the Central Bank Gold Agreement (CBGA) run by a cartel of heavyweight central banks in Europe was about to expire, and that these gold agreements, which have been running in rolling five year periods since September 1999, were not designed for the purposes they claimed to be.

That CBGA1 and CBGA2 from 1999 – 2008, were not intended to help the wider gold market by limiting central bank gold sales, but were really a cover by the central bank syndicate members to account for nearly 4000 tonnes of gold that had already been sold or leased during the 1990s. That CBGA3 was then used to distract the gold market about the secretive ‘gold sales’ that the IMF claimed to have undertaken in 2010, which were really another book squaring exercise for previously disposed IMF gold.

The heavyweight signatories to the central bank gold agreements (CBGAs) include Eurozone member banks such as the Bundesbank, the Banque de France, Banca Italia, De Nederlandsche Bank, National Bank of Belgium, the European Central Bank (ECB) itself, as well as the non-Eurozone Swedish Riksbank and the Swiss National Bank. In its composition, the consortium replicates the nexus of the 1960s London Gold Pool (Switzerland, Germany, France, Italy, Netherlands, Belgium) and the nexus of the central banks which met at the Bank of International Settlements (BIS) in 1979 and the early 1980s to plan a secretive new 1980s gold pool.

Swedish Riksbank press release 26 July 2019

Last month’s article also pointed to the fact that this syndicate of European central banks had also been absent as buyers of monetary gold over the 1999 – 2019 period, when all around them central banks of nations such as Russia, China, India, Turkey, and Kazakhstan were busily doing the opposite and boosting their strategic monetary gold reserves.

The question then was, do these European central bank signatories to the CBGAs have an agreement among themselves not to buy any gold, that is contained in, for example, a non-public annex to the CBG Agreement? If so, then as we explained:

It would not be the first time that G10 and Switzerland central banks agreed among themselves not to purchase gold. They did so in the mid 1970s when in conjunction with the IMF, when “the countries in the Group of Ten and Switzerland also agreed that there be no action to peg the price of gold, and that the total stock of gold in the hands of the Fund and the monetary authorities of the Group of Ten and Switzerland would not be increased.”

European System of Central Banks

Open Season on Gold Buying

While waiting for word from the European Central Bank (ECB) about a fifth CBGA, the conclusion here last month was that:

Given that the whole CBGA scheme was a cover whose main purpose has already been achieved, there is no compelling logic for a fifth CBGA, except of course unless there have been further physical gold flows out of western central banks which need to be squared off in the books.”

Well, we don’t have to wait any longer, since the ECB, Swiss National Bank, and Swedish Riksbank have all issued coordinated press releases dated 26th July, confirming that there will not be a fifth central bank gold agreement when the current agreement expires in September 2019.

This is because, according to the ECB press release, the signatory banks “conclude that a formal gold agreement is no longer necessary” because they say “the market has developed and matured”, more specifically that “since 1999 the global gold market has developed considerably in terms of maturity, liquidity and investor base.

Given that the real reason for the CBGAs from 1999 onwards was to close out previously sold and leased gold while hiding the transactions, this excuse for non-renewal is irrelevant, but even in its wording about the changing shape of the global gold market it is misleading.

The ECB – SNB – Riksbank press releases also mislead with the ironic claim that “the Agreement contributed to balanced conditions in the gold market by providing transparency regarding the intentions of the signatories”, when in fact the Agreement was the complete opposite, i.e. a cover for gold that had already been disposed of.

However, this latest news about the non-renewal of the CBGA is important because it is the best evidence yet that there most likely is an unpublished agreement among the participating European central banks not to buy any gold, but that this private agreement not to buy gold is now being torn up. Which would mean that open season for central bank gold buying is about to begin.

Now that it seems to be open season for central banks in Europe to begin buying gold, the ECB still has an input on the subject, saying its governing council update, also 26th July, that the decision not to renew the CBGA “is without prejudice to each national central bank’s competences regarding the management of its own gold reserves.

The CBGA member press releases acknowledge the eagerness to buy gold, saying that “central banks and other official institutions in general have become net buyers of gold” and that “the signatories confirm that gold remains an important element of global monetary reserves, as it continues to provide asset diversification benefits.”  The Swiss National Bank press release adds some flavor claiming that the “gold agreement [is] no longer necessary due to changes in market conditions and in central bank activities.

As none of the CBGA cartel central banks “currently has plans to sell significant amounts of gold“, has it been a case of gold buying envy as Russia, China and even Poland and Hungary have piled into the yellow metal? It would certainly seem so.

The press release from the ECB can be read in pdf format here, from the Swiss National Bank (SNB) in pdf format here,  and from the Swedish Riksbank in pdf format here.

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