The fourth Central Bank Gold Agreement, signed by the European Central Bank and 21 other national central banks, is due to expire on September 26 this year, unlocking the potential for more central bank investment into gold bullion to rival that of Russia and China.
The CBGA is a formal agreement between banks to prevent uncoordinated sales of gold bullion en masse. The first deal was brokered in 1999 when selling was prolific, but since then gold prices have steadily risen and sales have steadily slowed. As the ECB states in their press release, member banks haven’t sold sizeable amounts of physical gold for nearly 10 years now. While it’s not evident the agreement would have previously limited buying, it’s feasible that there were terms meaning that buying must be a coordinated effort, or buying must be conducted within the Eurozone - a problem when selling is restricted.
World Gold Council data shows that central banks, as of 2018, held 33,200 tonnes of gold bullion – almost 20% of the gold ever mined. The WGC also reported that 2018 was a record year for buying; the 651.5 tonnes bought was a 4% increase on 2017 and the largest amount bought for 50 years.
With President Trump suggesting that the trade war may go on until next year’s presidential elections, central banks might be keen to continue pursuing physical gold as an alternative to the US Dollar and a hedge against risk in the face of trade disruptions and the economic impacts they have.
For the full European Central Bank press statement, please click the link below: