The eurozone central banks that ♥ gold…

Posted by Izabella Kaminskaon Jun 15 15:34.

Bullionvault’s head of research Adrian Ash has spotted an interesting trend among eurozone central banks this year.

Rather than selling gold, they’ve been buying it instead.

Not a lot.

But buying — mostly for gold coin trading purposes– nevertheless.

As Ash noted to FT Alphaville on Wednesday:

Contrary to apparent “rumor”, Eurozone central banks are buying gold, not selling it. Only by €6 million mind, and all of it in coin so far in 2011. But even excluding Estonia’s Euro-accession purchase, the net rise still stands in sharp contrast to the 1,937 tonnes sold by those same 17 central banks over the previous 12 years.

While the 180 kilos of gold bought so far may be peanuts when compared to the 150 tonnes bought by emerging-market banks in 2011, it’s still a trend to be clocked.

Notably because it rules out any rumours of central banks selling gold to finance internal eurozone bailouts.

Also, as Ash notes, because it possibly shows that eurozone central banks no longer feel comfortable implementing long-term gold sale programmes:

But while seemingly due to active gold coin trading (a common enough sideline for central banks), the real cause of this marginal increase is the historic end of West Europe’s two-decade gold sales. And the cause of that, of course, is the financial crisis creeping ever-closer to the Eurozone system itself.

Indeed, Ash goes on to point out that central bank gold sales seem to unequivocally tied to economically stable times:

It’s when everything looks just fine that central banks sell. Put another way, “Who needs gold when we’ve got Alan Greenspan?” as the New York Times asked in 1999. (The answer, of course, was that we all did.) Either way, the two decades of sales – two decades which followed 20 years of sitting tight during the Great Inflation of the 1970s and ’80s, as our chart shows – are very much finished. Selling gold amid crisis would be to announce the end of the world. And that’s not what central bankers are paid for, even if it is what they seem bent on bringing about.

Interesting market psychology.

Related links:
It’s the BIS
– FT Alphaville
Consolidated financial statement of the Eurosystem as at 25 March 2011 – ECB
European banks use gold reserves to raise cash – FT

This entry was posted by Izabella Kaminska on Wednesday, June 15th, 2011 at 15:34 and is filed under Capital markets, Commodities. Tagged with , , , , .

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