Central Bank Buys Gold

January 5, 2007

This is a very important article as it suggests the beginning of a shift in psychology in the financial sphere of influence. As the new year developes I fully expect to see more articles like this one.

Gold roars after ECB member bank buys

By Ambrose Evans-Pritchard
Last Updated: 1:02am GMT 03/01/2007


Buying bullion
Buying bullion: central banks seek alternatives to the dollar

Gold punched ahead in New Year trading on dollar weakness and the revelation that a member of the European Central Bank system had begun buying bullion, the first such purchase in years.

The ECB's family of 12 banks have been major sellers of gold since the euro launch in 1999, helping to drive prices down to a 20-year low at the start of the decade. Constant ECB sales have acted as a cap on rallies.

Any indication that Europe's big guns are at last switching to the buy side – even if tentatively – could have a profound effect on investor psychology at a time when central banks worldwide want alternatives to dollar reserves.

The ECB said one of its member banks bought gold in the week ending December 22, 2006, but did not identify the amount or country. The news helped lift gold $4.10 to over $640 an ounce.

Euro-banks have bought gold before – in July, for instance – but past purchases involved coins bought from Greek citizens under a scheme run by the Greek national bank and did not signal any change in strategy.

The latest purchase refers to bullion reserves, suggesting one of the euro-zone banks may have broken ranks, countering the pattern of sales by the Banque de France, and the Dutch, Spanish and others.
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Analysts said the Bank of Italy was a possible candidate. Rome has not sold any gold so far, and stunned investors by switching 20pc of its reserves into sterling in 2005, a move that reaped fat rewards as the pound surged to 14-year highs against the dollar.

Under an international agreement, a group of 15 European banks are limited to sales of 500 tonnes a year. They fell far short of their quota last year for the first time.

An ECB spokesman said member banks had bought gold "once or twice" since the euro launch in 1999, calling the latest purchase an end of year "technical" adjustment. Nikos Kavalis, an analyst at GFMS, said it was too early to tell if the purchase was significant. "We would be cautious about this. These banks have a duty to uphold monetary stability: they're not hedge funds," he said.

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