Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Important Impact of This “Secret” Gold Agreement

Commodities / Gold and Silver 2014 Jul 31, 2014 - 08:11 PM GMT

By: Money_Morning

Commodities

Peter Krauth writes: The fourth iteration of the Central Bank Gold Agreement (CBGA) has just been signed.

Essentially, it’s a statement by Western Europe’s most powerful central banks about how much gold they’re willing to sell over the next five years.

Though done with no fanfare and barely any media coverage, its importance can’t be overstated.


The real story lies with who hasn’t signed, and what they’re doing with their gold…

Below-the-Board Dealings Are Rampant

In the recent announcement, one statement made by the CBGA’s members affirms, “The signatories will continue to coordinate their gold transactions so as to avoid market disturbances.” 

While that sounds harmless and perhaps even helpful, it’s not.

The Gold Anti-Trust Action Committee (GATA), a gold price manipulation watchdog group, rightly points out:

    Of course that statement is meant to be construed as saying that the participating central banks don't want to be the ones to "disturb" the gold market. But then by definition a free market is always subject to "disturbances" arising from the interaction of its many participants. What matter is it to central banks if the gold price is "disturbed" any more than the market for pork bellies is "disturbed" – unless, of course, gold, unlike pork bellies, has a powerful influence on financial instruments of vital importance to central banks, instruments like currencies, government bonds, and interest rates, unless gold is, to central banks, the most dangerous form of money, a form potentially independent of central bank control?

We just can’t count on central banks to help maintain a free market in gold. Apparently, neither can we rely on the century-old London Gold Fix.

And there are other reasons to wonder about CBGA members’ influence…

Whether or not the signatories of this agreement even have gold to sell is another matter entirely.  Some market observers point out that many western Central Banks have leased out most or all of their gold.

Indeed, several refer to their gold reserves as “Gold, including gold swapped and on loan,” or some variation of this.  Unlike gold, accounting tricks are never in short supply.

After all, if the gold was really all there, why would Germany need eight years to repatriate its 742 tons? So far only 76 tons have returned, a pace that’s running way behind schedule at less than half the monthly target.

The attraction?  “Gold swaps” and “gold leases” allow central banks to turn their gold holdings into a more “productive asset”; one that provides yield. It’s a tempting sales pitch to which many a central banker has succumbed. 

The most recent victim: Ecuador.

“Help” from the “Vampire Squid”

In order to deal with its massive $4.94 billion budget deficit, 55% of Ecuador’s gold reserves, worth about $580 million, will be shipped off to Goldman Sachs.  In exchange, the Goldman will provide “instruments of high security and liquidity.” 

Very reassuring, coming from the company once famously dubbed the “Vampire Squid” for having its unsavory tendrils into everything.

What’s more, Ecuador will earn $16 to $20 million over the three years Goldman will keep their gold “safe.” I did the math, and that works out to a paltry 1.15% annually.

Of course the central bank is all smiles, commenting:

    “Gold that was not generating any returns in vaults, causing storage costs, now becomes a productive asset that will generate profits. These interventions in the gold market represent the beginning of a new and permanent strategy of active participation by the bank, through purchases, sales, and financial operations that will contribute to the creation of new financial investment opportunities.”

I have to ask, if you were acting in your nation’s best interest, would you trade half its gold to Goldman for three years, to earn 1.15%? 

Right. Me neither.

Remember, central banks don’t have the greatest track record in this respect.  The most egregious example is “Brown’s Bottom,” when then UK Finance Minister Gordon Brown sold off nearly 440 tons of gold at prices between $256 and $296.  Ouch.

365% in Returns, Despite Big Banks’ Efforts

As far as Ecuador’s gold is concerned, together with all the other “swapped” and “leased” gold from western central banks, the most likely destination is China and Russia, along with other steadfast Asian nations.

Was this a great deal for Ecuador? Probably not. Otherwise, why would Goldman have done it?  My bet is with “the squid” making serious money on this one. 

If you only read mainstream media, you’d never know the CBGA agreement even exists.

And if there’s one thing to retain about the announcement of the agreement’s fourth version, it’s this statement by its signatories:

    “Gold remains an important element of global monetary reserves.”

Although gold’s price may be languishing as we approach the seasonal summer doldrums, it’s not time to let down your guard and capitulate by selling your stash.

As the current “economic recovery” takes hold and perhaps even gathers steam, gold’s outlook will improve along with lending, monetary velocity, and inflation. 

Remember, the first CBGA was signed in 1999 and, despite its pullback of the last three years, gold has still managed to rise by 365% to date.

Source : http://moneymorning.com/2014/07/31/the-important-impact-of-this-secret-agreement/

Money Morning/The Money Map Report

©2014 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in