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The Fourth Central Bank Gold Agreement – Started 27-9-2014 – What gives?

On 19th May 2014, the European Central Bank and 20 other European central banks announced the signing of the fourth Central Bank Gold Agreement. This agreement, which applies as of 27 September 2014, will last for five years and the signatories have stated that they currently do not have any plans to sell significant amounts of gold.

 

Collectively, at the end of 2013, central banks held around 30,500 tonnes of gold, which is approximately one-fifth of all the gold ever mined. Moreover, these holdings are highly concentrated in the advanced economies of Western Europe and North America, a statement that their gold reserves remained an important reserve asset, a statement made in each of the four agreements since then.

 

After 29 years of implied threats that gold was moving away from being an important reserve asset and the potential sales of central bank gold the gold price had fallen to $275 down from $850 in 1985. But the sales that were seen were so small that with hindsight they were seen as only token gestures. Today the developed world’s central banks continue to hold around 80% or more of the gold they held in 1970.

 

It only became clear subsequently that the real purpose behind these sales [from 1975] were to reinforce the establishment of the U.S. dollar as ‘real money’ and the removal of gold as such. The U.S. government would brook no competition from gold, but continued to hold gold [as money ‘in extremis’] in ‘back-up’.

 

Then in 1999 the euro was to be launched. It too needed to ensure that Europeans, who had a long tradition of trusting gold over currencies, would not reject the euro in favor of gold and turn to gold and its potentially rising price. So it was decided that while gold was to be retained as an important reserve asset, its price had to be restrained for some time, while Europeans were made to accept the euro as a reliable, functioning money in their daily lives.

 

To that end, major European central banks signed the Central Bank Gold Agreement (CBGA) in 1999, limiting the amount of gold that signatories can collectively sell in any one year. There have since been two further agreements, in 2004 and 2009. By the time you receive this, the fourth Central Bank Gold Agreement will be in operation. It begins on the 27th September. Here is the statement on the Agreement from the signatories:

 

ECB and other central banks announce the fourth Central Bank Gold Agreement

 

The European Central Bank, the Nationale Bank van België/Banque Nationale de Belgique, the Deutsche Bundesbank, Eesti Pank, the Central Bank of Ireland, the Bank of Greece, the Banco de España, the Banque de France, the Banca d’Italia, the Central Bank of Cyprus, Latvijas Banka, the Banque centrale du Luxembourg, the Central Bank of Malta, De Nederlandsche Bank, the Oesterreichische Nationalbank, the Banco de Portugal, Banka Slovenije, Národná banka Slovenska, Suomen Pankki – Finlands Bank, Sveriges Riksbank and the Swiss National Bank today announce the fourth Central Bank Gold Agreement (CBGA).

 

In the interest of clarifying their intentions with respect to their gold holdings, the signatories of the fourth CBGA issue the following statement:

  • Gold remains an important element of global monetary reserves;
  • The signatories will continue to coordinate their gold transactions so as to avoid market disturbances;
  • The signatories note that, currently, they do not have any plans to sell significant amounts of gold;
  • This agreement, which applies as of 27 September 2014, following the expiry of the current agreement, will be reviewed after five years.

Commentary

Ø  The first clause confirms the ongoing role of gold as an important reserve asset.

 

Ø  The most important part of the statement is the third part, where the signatories confirm “they do not have any plans to sell significant amounts of gold.” In other words they have completed their sales. We do not expect them to resurrect their sales as they have fulfilled their purpose. Their sales stopped in 2010 in effect, bar some small sales by Germany of gold to be minted into coins. We did not consider these a part of these agreements.

 

Ø  The statement clarifies that none of the signatories will act independently of the rest and sell gold. They will coordinate any future transactions with the other signatories should a situation arise where a signatory wishes to sell again. We believe that this will not happen because of the financially strategic and confidence building nature of their gold reserves.

 

Ø  This agreement in lasting for five more years reassures the gold market that none of the signatories will sell gold for five years and even then they will likely make a further agreement for five more years.

 

To us this statement and agreement removes the specter of central bank gold sales in the future. As we have seen since these sales were halted in 2010, emerging market central banks have been buyers of gold steadily and carefully, without chasing prices. We have the impression that the bullion banks go to prospective central bank buyers and ‘make the offer’ of gold available on the market, which the central bank then buys. They do not announce their intentions and act so as not to affect the price barring taking stock from the market. This not only reassures gold-producing countries and companies, who can be reassured that there will be no policy of undermining the price of gold with uncoordinated sales of gold, but tells the rest of the world including emerging central bank buyers that there will be no supplies from them put on sale. Such buyers will have to find what gold they can on the open market or from their own production.

 

For more information on how to safely [not simply overseas where it is still vulnerable] Enquire & Subscribe @ www.GoldForecaster.com   or  www.SilverForecaster.com

Enquire @ admin@StockbridgeMgMt.com

 

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.  Julian D. W. Phillips makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Julian D. W. Phillips only and are subject to change without notice. Julian D. W. Phillips assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage which you may incur as a result of the use and existence of the information, provided within this Report.

 

Of course the Gold Price is manipulated, that’s the point! – The “London Gold Pool” – 1961 to 1968

By Julian D. W. Phillips

 

By the beginning of the 1960s, the U.S.$ 35 = 1 oz. Gold price was becoming more and more difficult to sustain. Gold demand was rising and U.S. Gold reserves were falling, both as a result of the ever increasing trade deficits which the U.S. continued to run with the rest of the world.

Shortly after President Kennedy was Inaugurated in January 1961, and to combat this situation, newly-appointed Undersecretary of the Treasury Robert Roosa suggested that the U.S. and Europe should pool their Gold resources to prevent the private market price for Gold from exceeding the mandated rate of U.S.$ 35 per ounce. Acting on this suggestion, the Central Banks of the U.S., Britain, West Germany, France, Switzerland, Italy, Belgium, the Netherlands, and Luxembourg set up the “London Gold Pool” in early 1961. One wonders why they were so cooperative with the U.S. Granted the gold that left these nations ahead of the war was still in the U.S. and slowly but surely they felt it necessary to get it back.  What happened in occupied Europe was that U.S. dollars became more abundant there and a market in ‘Eurodollars’ sprang up derived in part from U.S. soldiers still in Europe. But the volumes grew more and more as the U.S. established a perpetual Trade deficit feeding the rest of the world with them.

The ‘Pool’ came apart as Europe, under Charles de Gaulle, decided enough was enough and began to send the Dollars earned by Europe back to the U.S. back and exchanged these for their gold.  Then they were unwilling to continue accepting U.S. Treasury Bills & Bonds in return. Under the terms of the ‘Bretton Woods Agreement’ signed in 1944, Europe was legally entitled to do this. It would appear that by the time the gold sent to the U.S. before the war had returned to Europe, the U.S. pulled the plug on exchanging gold for dollars letting the London Gold Pool fold in April 1968. But the demand for gold from Europe did not abate.

By the end of the 1960s, the U.S. once again, [see 1935 dollar devaluation against gold] faced the stark choice of eliminating their trade deficits or revaluing the Dollar downwards against Gold to reflect the actual situation.

President Nixon decided to do neither. Instead, he repudiated the international obligation of the U.S. to redeem its Dollar in Gold just as President Roosevelt had repudiated the domestic obligation in 1933. On August 15, 1971, President Nixon closed the “Gold Window”. 

In other words the U.S. defaulted on its agreement with Europe and once again Europe tolerated it. We have to ask why? How could a currency with, what was to become perpetually undermined by being printed and exported, continue to stand and become the world’s sole reserve currency and not collapse?

Military might, might add some pressure, but not among the allies.  No, the key lay in the then established fact that you could only buy oil with U.S. dollars. Nearly everything modern needed oil to work. Most nation’s import bills comprised 25%+ of oil. The U.S. controlled O.P.E.C. and provided their political and military security. In turn the U.S. had a firm grip on all their allies and secured their financial ‘empire’.

The last link between Gold and the Dollar was gone. The result was inevitable. One of the prices paid by the U.S. was to permit the oil producers to ‘nationalize’ their oilfield, production and the U.S. and British companies that ran them, the ‘seven sisters’. The oil price began to run up from $8 a barrel to $35 a barrel vastly increasing the demand for dollars and U.S. dollar liquidity. The U.S. in turn permitted this provided the oil producers reinvested the capital they earned into the U.S. Treasury market and U.S. equities and U.S. products [including military hardware]. They were allowed to keep the interest income in their own hands under these conditions. This prevented the oil producers posing any financial challenge to the U.S.

The Persian Gulf was defined as part of the U.S.’ ‘vital interests’, as a result. So if the allies in Europe wanted their economies to function properly they had to accept this fact. Quietly they accepted more and more U.S. dollars into their foreign exchange reserves. 

As the oil price rose the pressure on all currencies climbed too. In February 1973, the world’s currencies were “floated”. They were allowed to move to levels that reflected the state of their Balance of Payments. The U.S. was excused all such value measurements because it was so needed by all.

By the end of 1974, Gold had soared from $35 to $195 an ounce in an almost mathematically neat progression. This did not make the U.S. happy at all, as it highlighted the real weakening of the U.S. dollar and the sagacious investor was fully aware of this.

So a war on gold was begun.  This was not just manipulation but a transparent bullying attack on real money. At first the tactics used underestimated the power of gold and the trust placed in it.

Nevertheless the common theme to this manipulation was to suppress the gold price.

For more information on how to safely [not simply overseas where it is still vulnerable] Enquire & Subscribe @ www.GoldForecaster.com   or  www.SilverForecaster.com

Enquire @ admin@StockbridgeMgMt.com

 

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.  Julian D. W. Phillips makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Julian D. W. Phillips only and are subject to change without notice. Julian D. W. Phillips assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage which you may incur as a result of the use and existence of the information, provided within this Report.