Bank Sales excitement!

If there really was ever any doubt about the tail (physical gold trading in London) wagging the dog (gold paper markets across the rest of the world), the recent excitement about all of the central bank activity in the gold market has again proven that indeed the gold market is moved by the actions of a few and it is paramount to keep an eye on that activity.

1.)  The Bank of Spain updated May sales figures this morning and no surprise, Spain sold another 28 tonnes of gold in May after having sold 40 tonnes in March and another 40 tonnes in April.  In three months and via an unannounced sales program, Spain has sold over 25% of their total gold reserves into the market.  The interesting point to keep in mind is that this might not necessarily being done to grab the best price…no, this "sales program" which has merited no public comment from the bank could be forecasting a much larger problem on the horizon in the fiat currency of Spain.  While we are no expert on the Spanish economy, this fire sale of gold reserves looks much more like an attempt to raise quick cash to solve banking and housing issues rather than a program of diversification. 

2.)  The 133 tonnes in total sales over the past 3 months has not included the 37 tonnes in sales from the ECB umbrella organization as of yet.  Looking at updated figures this morning showing less than 2 tonnes of sales last week by ECB captive banks, that 37 tonne figure has yet to show up in reports.  So all told, the gold market in the last 3 months actually digested 170 tonnes of gold sales from ECB banks.  We have no updated figures yet on banks outside of the ECB system because they report on a 3-6 month lag. 

For a point of reference, even during the Bank of England and Bank of Switzerland gold purge from 1999-2004, no three month tally during the CBGA has been as high as 170 tonnes of sales into the market.  The fact that the price has held up during this sharp increase is nothing short of remarkable and should highlight for even the market novice the underlying strength in the market.

Head of Press Regina Karoline Schuller told Dow Jones Newswires that the 37 metric tons of gold sold by the ECB in May hadn't yet shown up in ECB data and "will be reflected in the relevant weekly financial statements in due course." -  Dow Jones Article, June 3rd

3.)  UBS has put out a new research note this morning stating that they see ECB sales reaching quota of 500 tonnes this year.  This has been revised up from the 400 tonnes of sales they had been expected.  Our only thought is will this really matter anymore?  The significantly increased sales in a short time period have kept the prices bottled up, but have not satiated demand in the market.  If you can figure out what's affecting prices, then it's easy to pin point that during a period of increased bank sales, it is an opportunity to buy.  As has been proven after every major set of bank sales in the last decade, the price eventually goes higher after the sales are done.

4.)  Now that ECB bank sales and other central bank gold activity has become the issue of the day (we're sure the market will move to something else tomorrow), we think it's time to start asking the hard questions about the gold loan and swap market again.  This is the other side of central bank activity that no market analyst will touch with a ten foot pole because it's impossible to quantify and accurately track.  If all the recent excitement about central bank sales activity isn't enough to get the average market participant interested in what's happening with the other gold in the central bank vaults, maybe nothing ever will.