Why the new central bank agreement is bullish for gold

Section:

Central bankers sign new accord on gold

http://www.reuters.com/newsSearchResultsHome.jhtml;jsessionid=QNB4UZE
VJ5330CRBAEKSFFA?query=European+central+banks&section=a&x=12&y=12

By Thomas Atkins

BASEL, Switzerland, March 8 (Reuters) -- Europe's central
banks said on Monday they had reached a new deal that
raises the limits on their annual gold sales in a further blow
to bullion's role as a global monetary tool.

They capped sales at 500 metric tons a year for the next
five years -- a total that was broadly in line with expectations
and slightly higher than the expiring pact's 400-tonne limit.

The overall limit for the five-year accord is 2,500 tonnes, up
from 2,000 under the 1999 agreement.

"It's not a surprise at all. The market had expected (between)
2,400 and 2,500 tonnes," Wolfgang Wrzensniok, sales
director at Dresdner Kleinwort Wasserstein, said.

Stephen Briggs, analyst with Societe General, said: "My
guess is that there will not be a huge impact on the price."

Initial market reaction was muted, with gold easing and then
steadying around $399.50 an ounce, off a 15-year high of
$430.50 touched in January.

The new accord will start in September 2004, replacing the
original 1999 agreement that expires on that date, the
central banks said.

Before the new deal was struck, the Bundesbank, the world's
second largest holder of central bank gold, said it had
requested an option to sell 600 tonnes.

The UK said it would not take part in the new programme
because Britain did not intend to sell any gold during the
period covered by the deal.

The Swiss National Bank said it had no plans to sell beyond
130 tonnes already planned.

The agreement was announced on the sidelines of the Group
of 10 meeting of central bankers from top industrialised nations
and emerging markets. The 1999 agreement, struck when gold
was sinking sharply as the precious metal lost allure during the
internet and new economy era, helped stabilise the price of
gold.

"Gold will remain an important element of global monetary
reserves," the joint statement by 14 central banks and the
European Central Bank said.

Central banks have been shedding gold, once a mainstay of
their reserve assets, in favour of hard currencies as gold's
status as a store of value has declined.

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