Central banks globally hold 29,697 tonnes of gold

While it was widely expected, the Central Bank Gold Agreement CBGA2 has been rolled over into a CBGA3. Under the new agreement announced on Friday morning, signatories won’t be allowed to sell more than 400 tonnes of gold.

This restriction is 100 tonnes a year less than the 500 tonnes a year under CBGA2. In total, the sales will not exceed 2,000 tonnes in five years. Signatories to the agreement includes the 16 Eurozone central banks, the ECB, the Swiss Central Bank, and the Swedish Central Bank. While the immediate impact might be limited, we view the long-term impact of CBGA3 as positive for gold.

"We doubt that the 400 tonnes restriction on selling is a binding restriction. Many central banks are likely to decrease their selling of gold under CBGA3. For example, the SNB has already indicated it has no intention of selling any of its 1,040 tonnes of gold any time soon. Under the CBGA2, there was a declining trend in gold sales. In 2004/05, 497.2 tonnes of gold were sold," says a commodities research report from Standard Bank.

In 2008/09, only 136 tonnes were sold (refer to figure). At least for the next year, we expect central bank gold sales to be limited, the report said.

There are indications that the IMF’s 403 tonnes of gold could be accommodated under the CBGA3. The IMF indicated this already a few weeks ago and, should this happen, we would view it as gold-supportive, especially if the IMF sells most of its gold in under two years.

This could limit total sales a year by other signatories substantially, and reduce gold supply to the market. The rolling over of CBGA2 could be an reflection that central banks globally might be less willing to sell gold. These central banks hold a total of 29,697.9 tonnes. Signatories of CBGA2 holds 11,991.6 tonnes.