Sales cap makes gold a safe bet
Sun Herald
Sunday August 9, 2009
GOLD prices were given a boost after central banks in Europe agreed to renew their pact to cap sales of the precious metal for another five years.In a move that was welcomed yesterday as reaffirming the precious metal's status as a key reserve asset, the new Central Bank Gold Agreement also reduced the maximum amount of gold that can be sold by the signatories.Under a new deal that replaces the existing five-year pact, which ends in September, the limit for sales has gone down from 2500 tonnes to 2000 tonnes for the five-year period. Annual sales are now capped at 400 tonnes, down from 500 tonnes €“ a quota that was not reached in recent years.European central banks first agreed to cap gold sales in 1999 to reduce market volatility. Their agreement to prevent markets from being flooded with the precious metal has been an important factor in its rally over recent years.Gold's status as a safe-haven asset has also helped boost prices during the economic downturn. The new deal and its tighter quotas help cement a view that the days are over of central banks' anti-gold stance and the kind of big sales announcements €“ notably by the Bank of England at the end of the 1990s €“ that led to wild swings in prices.The World Gold Council welcomed the new deal."The announcement is a clear endorsement of gold's role in today's global economic and financial architecture and a reflection of the success of the previous Central Bank Gold Agreements," said its chief executive, Aram Shishmanian.He said the agreement shows that, at a time of continued market volatility, gold's unique investment qualities provide the necessary hedge and protection sought by central banks.
© 2009 Sun Herald