Central banks are committed to being stable market managers, especially when it comes to their own investment behaviour. The sudden and brutal fluctuations in the price of gold before the first CBGA show what a world without agreement could look like. The agreements have provided the gold market with much-needed transparency and a commitment from global central banks not to participate in uncoordinated wholesale gold sales. By this agreement, the signatories agreed not to put more than a maximum amount of gold on the market during the term of the contract. The aim was to stabilize the gold market by creating transparency of central bank intentions. The agreement was initially between 15 central banks, but the number of signatories has increased to 22. Since 1999, the agreement has been renewed three times, for a period of five years, and conditions have eased over time. The major European central banks have not started buying gold, but purchases from Poland and Hungary have made the continent a net buyer. (Report by Francesco Canepa and Peter Hobson; Writing: Jan Harvey) During this period, the signatories of this agreement agreed that the total amount of their goldleasings and the total amount of their use of gold futures and options will not exceed the amounts in force on the date of the signing of the previous agreement.
This agreement will be reviewed after five years. The fourth CBGA, which expires on 26 September 2019, was signed by the ECB, the Belgian National Bank/National Bank of Belgium, Deutsche Bundesbank, Eesti Pank, the Central Bank of Ireland, the Bank of Greece, the Bank of Spain, the Bank of France. Banca d`Italia, Central Bank of Cyprus, Latvijas Banka, Lietuvos bankas, Central Bank of Luxembourg, Central Bank of Malta, Nederlandsche Bank, National Bank of Austria, Banco de Portugal, Banka Slovenije, N`rodné banka Slovenska, Suomen Pankki – Finlands Bank, Sveriges Riksbank and the Swiss National Bank. Countries around the world hold different amounts of gold. Before the Central Bank`s gold deal, European central banks sporadically sold gold. Since European countries have large hordes of gold, their uncoordinated sales would drive down gold prices. For gold to remain relevant as a safe port investment, the stability and scarcity of its market offering is important. The signatories confirm that gold remains an important component of the world`s foreign exchange reserves, as it continues to offer advantages for asset diversification and none of them currently plans to sell large quantities of gold. European central banks have welcomed their intentions, but there is a good chance that the central banks concerned will supplement their gold holdings. This could be the beginning of an open season, for lack of better words, in the gold market.
In the context of 2018, which is one of the highest purchases of gold, it is very likely that central banks will be net buyers of gold. Like any precious asset, the gold market has its own risks.