Gold And The Eurozone Central Banks: Who Bought And Who Sold In 2005

Thursday, December 08, 2005

While gold climbs to highs last seen a quarter century ago, the members of the Eurozone continue to sell into the strength. In the week ending December 2 they sold gold with a value of 108 million Euros, bringing the total since the end of September, when the current central bank gold sales agreement was renewed for another 12 months, to 1.369 billion Euros or almost 30% of what was sold in the first nine months of 2005.
As the ECB only announces how many Euro members have been selling gold I dug deeper into the ECB's database to find out which countries have been on the selling side and who has stayed away from the market.
Conclusion: Only (booming) Ireland, (insignificant) Finland, Greece and the stubborn Bundesbank, which sits on its ears (and the biggest gold hoard after the USA) whenever the government calls for gold sales in order to shore up the budget, did not take part in the continuing gold sales.
All other Euro members were quite heavy sellers and as a rule of thumb one notes that the bigger the budget problems, the bigger were the gold sales.
My methodology was to convert the monetary values of the gold assets into ounces with their respective evaluation which was 321.5 Euros at the end of 2004 and is currently 393 Euros/oz.
All together the Euro members and the ECB sat on 368.889 million ounces of gold at the end of 2004 and have reduced this cushion by 10.056 million ounces or 2.6% by the end of October 2005, bringing it to 376.832 million ounces.
  • The ECB itself sold off 6.5% or 1.6 million ounces in the first 10 months of the year, which leaves it with 23.05 million ounces.
  • The biggest seller in absolute terms was France. The "grande nation" sold 5.432 million ounces, reducing its gold treasure by 5.7% to 90.55 million ounces. France's unemployment rate hovers above 10%.
  • Second come the Netherlands. The country is plagued from recession dangers after the housing boom came to a halt some time ago. The Dutch sold 1.948 million ounces, shrinking their gold assets by 7.8% to 23.048 million ounces until October.
  • The bronze medal for the biggest gold sellers is awarded to Spain. The Spaniards reduced their gold reserves by 9.9% or 1.67 million ounces to a current total of 15.16 million ounces.
  • Rank #4 goes to Portugal whose budget deficit is out of control. The former colonial empire sold 1.16 million ounces in 2005, shrinking the contents of its treasure chest by 7.8% to 13.7 million ounces.
  • Belgium, shattered by frequent strikes of disgruntled state employees this year, sold a total of 982.088 ounces. Its gold hoard fell 11.8% to 7.3 million ounces this way.
The other Euro members were quite reserved about selling off the hardest part of their currency reserves.
  • Most surprising is the fact that Italy, just an inch away from a recession, was tight-fisted. In 2005 the boot-shaped country sold only 315,600 ounces of gold, reducing its gold assets by 0.4% to 78.5 million ounces.
  • Austria, faced with a sluggish economy but blessed with a very hawkish central bank governor, sold a total of 189.400 ounces, bringing its gold hoard down 1.9% to 9.7 million ounces.
  • Germany sold a negligible amount of 176,000 ounces, shrinking its gold treasure by a mere 0.2% to 110.2 million ounces.
  • Luxembourg let go a mere 868 ounces and currently holds 73,768 ounces.
So far the gold purchases within the Euroarea amount only to a few peanuts this year.
  • Biggest buyer was Greece which saw its gold reserves rise by 5,303 ounces or 0.2% to 3.47 million ounces.
  • Ireland's gold treasure grew exactly 514 ounces, bringing the total to 193,323 ounces.
  • The list ends with Finland which added 432 ounces to its gold treasure, now standing at 1.577 million ounces.

Summing all this up I arrive at a figure of 10.05 million ounces sold and 6,249 ounces bought.
One additional note that should not be forgotten is the fact that all European central banks state gold, gold swaps, leases and gold receivables in one figure. So we do not know how much physical gold they actually hold.
Of note is also that save for the Mexican central bank no other monetary authority lists the extent of its silver reserves - if there are any left since silver was gradually de-monetized in the 20th century.
It is up to you to decide whether this speaks for or against gold. In my opinion there will be no better investment in the rest of this decade. This bull market, supported by huge physical buying in Asia and the Arab world has only just begun. Don't short this market but buy the dips.

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