The 4th Central Bank Gold Agreement Now in Effect

Central Bank Gold AgreementIn May of this year, the European Central Bank and 20 other Central Banks of Europe signed the 4th Central Bank Gold Agreement, reinforcing the notion that these banks continue to view gold as an important reserve asset and that they continue to actively manipulate the price, despite public statements to the contrary. 

The document was signed by 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. 

The agreement, which was put in place to reduce price volatility, went into effect last week and is expected to last for five years. It stipulates that the Central Banks will not sell their gold reserves.

At the end of last year, Central Banks held around 30,500 tonnes of gold– 1/5 of all the gold ever mined. Most of these holdings are in Western European nations and the United States. 

1975 began a decade of gold sell-offs by Central Banks which sent the price of gold tumbling to $275 /ounce in 1985 from $850. Since then, the Central Banks have publicly downplayed the importance of gold and stated their efforts to move away from the precious metal.

In hindsight, these sell-offs are seen for what they actually were– efforts to establish the dollar as real money and to devalue gold. This becomes more obvious when you look at what happened when the Euro was first launched in 1999. In order to support the value of the Euro and establish it as a real currency, the first Central Bank Gold Agreement was signed, limiting the amount of gold the Central Banks would be able to sell during a given year. This helped ensure that Europeans (who have a long history of valuing gold as currency) would not shun the new Euro in favor of the precious metal. 

Additional Central Bank Gold Agreements were put into place in 2004 and 2009. 

“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.”

The establishment of this 4th Central Bank Gold Agreement is probably partly to have better control of pricing in relation to western currencies, but more likely this agreement is so the ECB and other Central Banks can prevent China from hoarding more of the available supply.

Since 2009, China has ceased to offer official reports on their gold production, imports, demand, and consumption and many analysts fear the country is stockpiling the metal as part of a plan to take control of the gold market and establish the Renminbi as an international reserve currency, backed by gold.

China has reportedly been purchasing mines around the world using proxy banks and shell companies to hide the amount of gold they are actually acquiring. By controlling the entire chain of supply, they can secretly import gold without other countries knowing what they are doing.  

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