-- Posted Tuesday, 29 April 2003 | Digg This Article
Contrary to market commentary, the Sales by the Portuguese Central Bank were within the terms of the Washington Agreement. Portugal is in line with their Agreement! What does this mean?
What we believe is that these sales are the most dramatic pieces of news to come out of the market for some considerable time. These factors will soon precipitate the steady, or accelerating upward path of the gold price. It is a factor that we had foreseen, but not this early in the Central Bank’s timetable. We will probably see our own forecasts made conservative.
We at Gold-Authentic Money have interpreted the Washington Agreement as designed to precipitate an orderly turn in the gold market from a falling price to a rising price.
The market will now seeing confirmation of our belief that the Washington Agreement will prevent “Official” supplies reaching the market, above the 400 tonnes.
The Central Bank of Portugal announced last week that it sold another 45t of gold in March and April. This follows on from 15t sold in late 2002, and 30t sold in February, taking the total to 90t in recent months. Taking into account the 33t Dutch sale, and the express wish of the Swiss to sell 283t this ‘WAG’-year (Sept-Sept), the full quota of 400tonnes per annum is now fully accounted for! The only Official Sales that can now take place before September 2003 are the remaining 126 tonnes of the total of 400 tonnes.
The Portuguese sales are believed to be related to options structures entered into prior to signing the Accord in 1999. We have no doubt that these Options were taken into account as the Washington Agreement was being formulated. Indeed the 15 Central Banks made the agreement, we believe with all the previously arranged sales on the table before them. These sales are no surprise to the signatories of the Agreement, unless they were not disclosed at the time, a possibility we find most unlikely.
We would like to re-state our belief that the total sales of 2000 tonnes was confirmation of previously arranged sales and acted as a ceiling on total sales, as we will see now.
Now that the annual Washington Agreement quota of 400 tonnes [including the balance of Swiss sales scheduled for this year] has been reached it will be interesting to see if and how any future price triggers will be dealt with. It is estimated that the Swiss have another 126t to sell by the end of September (a rate of around 6+ tonnes a week), and if Portugal is faced with another ‘Put’ or ‘Call’ before then, it will have to be at the expense of Swiss plans. Any postponement of Swiss sales cannot be added to next years sales as this quota is already scheduled up to 400 tonnes. However, it can be part of post-September 2004 sales.
The main immediate point of this news is that Central Bank sales will be limited to around 6 tonnes a week. No more sales can be used to exert any downward pressure on the price, from Central Banks, unless at the expense of eliminating further sales up to September 2003.
This highlights several factors:
1. We have no doubt that the 15 signatories will keep their obligations under the Washington Agreement, limiting Central Bank Sales to the remaining 126 tonnes, until September of this year..
2. Portuguese sales were absorbed easily, showing the current market supply requirements are far higher than the remaining 126 tonnes [which, in itself implies a reduction of Central Bank Sales, until Sept 2003] from Central Banks.
3. Current supplies should prove insufficient to keep the gold price down at current levels.
4. Those who need to buy at these sort of price levels [Producers who are de-hedging] are now on notice to do it quickly, or pay higher prices. This realisation will precipitate further demand from the largest buyers in the market.
5. Professional Investors will also realise the supply shortage will precipitate immediate ‘forced’ demand and take advantage, as will sagacious Speculators.
6. Further supplies can only come from Dis-hoarded, or Scrap gold. A higher price will be required to inspire these sales.
7. Physical buyers will also be aware of the supply shortage situation and could well secure supplies in excess of requirements ahead of a price rise.
8. We have stated that the original Washington Agreement intended to “rehabilitate” Gold as a reserve asset and lay the foundation for its acceptance back into the Monetary system. Part of this rehabilitation would be to allow the price to rise to far higher levels.
9. The next six months, we believe, will swing the market round from believing that Central Bank sales are just waiting to be dumped onto the market, to the reality that Central Bankers are happy to keep hold of their gold reserves, even as the gold price reaches higher levels.
10. Unwillingness on the part of Central Bankers to sell gold will grow.
