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Analysts differ on sales of gold by ECB

G. Chandrashekhar

Data suggests a considerably lower volume of actual sales

Contradictory views
GFMS: Signatories to the gold pact will fail to reach the quota.
Analysts are of the view that the banks have reached the quota

Mumbai , Oct 6

At 393 tonnes, the gold annual sales of European central banks fell far below the ceiling of 500 tonnes confounding market speculation during much of September that there had been a last minute rush to sell gold before the end of the second agreement year (September 26, 2006) and that this was responsible for the period's price weakness, according to London-based GFMS, world's foremost precious metals consultancy.

On October 4, European Central Bank (ECB) released relevant data that did not disclose any significant sales.

In its recent Gold Survey Update, GFMS had argued that signatories to the gold agreement would fail to sell sufficient quantity of gold by September 26 for the second agreement year's 500-tonne quota to be reached.

Reason for weakness

Convinced that total annual gold sales would `somehow' reach the quota, analysts tracking bullion attributed the price weakness in the market during much of last month to the presumed ramped up physical supplies from Europe.

In recent weeks, the market had remained quite subdued and range-bound for a host of reasons including slowdown in physical sales.

However, ECB's latest data suggested a considerably lower volume of actual sales, according to GFMS.

The consultancy asserts there is no reason to alter the belief that sales under the remainder of the agreement are unlikely to reach quota either on an annual basis or for the full five-year agreement period. "We are perhaps on the threshold of an era of more moderate net official sector selling", the consultancy observed.

While it is true that ECB data showed that gold sales for the week ending September 29 fell short of expectations, totalling just above two tonnes and giving a reported figure of 393 tonnes for sales, analysts confidently state that the banks have indeed reached the quota of 500 tonnes.

Analysts' view

They pointed out that the reporting system adopted by ECB shows only gold sales settled during the annual sales period and excludes forward sales not actually settled during the period.

Factual position

Obviously, the factual position would be out in the open soon when settlement figures are published. Meanwhile, lack of clarity on sales could provide some support to the market, as participants would continue to go by lower sales data until proved otherwise.

Yet, gold prices remained soft on Thursday with no support from geopolitics or currency.

With steep fall in crude prices and broader macroeconomic concerns weighing on the market, funds seem to be cutting their exposure to precious metals.

Technical analysts have turned more neutral to gold stating that price action in the next few days would be key to dictating direction over the medium term.

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