European central banks renew gold agreement

A group of 21 European central banks said on Monday they have no plans to sell "significant" amounts of gold over the next five years. In a joint statement, the central banks of the 18 eurozone nations, the European Central Bank and the central banks of Switzerland and Sweden said: "Gold remains an important element of global monetary reserves." They said: "The signatories will continue to coordinate their gold transactions so as to avoid market disturbances. "The signatories note that, currently, they do not have any plans to sell significant amounts of gold," the statement said. The new five-year agreement replaces a similar pact between central banks that expires on September 27, 2014. The previous deal, agreed in August 2009, committed the central banks to sell no more than 400 tonnes per year and no more than 2,000 tonnes in the five-year period. In general, it is highly unusual for central banks to give outlines, even broad, about their policy towards reserves of gold which in some countries are not fully disclosed, but the European central banks did so in 1999 when the price of gold had fallen to an exceptionally low level. This was partly driven by sales by European central banks, motivated to some extent by the launch of the euro and the reduction of foreign exchange risk which this implied. These sales had pushed down the price and led to comment that gold was just like any other commodity. Gold reserves and the price of gold are closely watched on financial markets, partly as a barometer of inflation expectations. The central banks acted at the time out of concern that the signs of the low gold price might be misunderstood, and affirmed that gold remained an important part of the global monetary system, setting the basis for a long and upward trend for the gold price.