“Gold remains an important element of global monetary reserves,” central banks affirm

European pact means no “significant” bullion sales planned

The European Central Bank and 20 other top regional central banks have announced a fourth Central Bank Gold Agreement — a pact that’s important for bullion investors because it pledges no imminent large-scale sales of the yellow metal.

In the May 19 press release, the signatories pledge that “gold remains an important element of global monetary reserves” and that “they do not have any plans to sell significant amounts of gold.”

“The agreement, the fourth of its kind, marks a continued commitment from some of the world’s largest gold reserve holders to preserve the clarity and transparency that this agreement provides for gold market participants,” the World Gold Council said. “It also firmly reasserts the importance of gold as an asset in global monetary reserves.”

In recent years, central banks around the globe started buying gold again, reversing a longstanding trend, and those purchases have been a key pillar of support in gold’s long bull run because they take major supply off the market.

The new gold agreement differs from previous pacts in that it lacks a cap on sales for the first time. However, with the ECB expected to introduce a negative interest rate at its June meeting and perhaps even a quantitative-easing program at a later date, now is not the time to get rid of a reserve asset like gold.

A couple of analysts dismissed the lack of a sales cap. “The lack of an explicit quota introduces some uncertainty, but given the trend in central bank activity in recent years, it only becomes more of an issue if this trend shifts. And at this point, I don’t see that happening any time soon,” said Joni Teves of UBS.

“European gold sales are over,” added Natalie Dempster of WGC. “If you look at the trend elsewhere, in the past few years we’ve seen significant purchases from Asia and Latin America. What it says is, central banks have been net buyers of gold for the past few years, and that trend is likely to remain in place for the next few years.”

More information can be found online at http://www.goldbullionadvisors.com