Bank''s economists appeal to central banks for more market intervention

Section:

By Ralph Atkins and Kevin Morrison
Financial Times, London
Tuesday, March 21, 2006

http://news.ft.com/cms/s/686ce0a2-b908-11da-b57d-0000779e2340.html

The Bundesbank, the German central bank, on Tuesday rebuffed the
Berlin government by announcing that it had decided against
substantial gold sales before at least September.

The decision, although widely expected, marked a fresh assertion of
independence by the bank, which has been under pressure to sell by
the government of Angela Merkel, chancellor.

"Gold is an essential part of the currency reserves of the
Bundesbank," said Axel Weber, Bundesbank president. "Decisions on the
manner and size of reserves are taken autonomously."

Mr Weber said that the decision related to sales in the current year
of its option of 600 tonnes permitted by the Central Bank Gold
Agreement, which expires in September 2009.

It excluded, however, the sale of up to eight tonnes for the
manufacture of gold coins by the government.

Mr Weber said no decisions had been taken about possible gold sales
in future years.
According to the Bundesbank's annual report, it held 3,427.8 tonnes
of gold at the end of 2005 -- with just five tonnes sold for minting
coins.

The bank is the largest holder of gold among the 15 signatories to
the gold agreement.

The cash-strapped Berlin government has stepped up pressure on the
Bundesbank to sell gold, and for the interest on the proceeds to be
used to fund research and education projects.

The government has also proposed substantial cuts in Bundesbank staff
bonuses in an attempt, some observers believe, to increase its
bargaining pressure.

John Reade, precious metals strategist at UBS, said it was unclear
when the Bundesbank would sell gold under the current pact because
the Bundesbank and the German Finance Ministry have yet to agree on
how future gold sale proceeds will be distributed.

"Until they reach an agreement, it is unlikely we will see any gold
sales coming out of Germany," said Mr Reade.

The impact of Tuesday's announcement by Berlin will have been
softened by a strong increase in Bundesbank profits, which will be
transferred to the government.

The increase reflected higher interest payments and the effects of a
weaker euro.

The Bundesbank's decision came as no surprise to the gold market with
the price of gold falling about $3 to $550.00/$550.90 a troy ounce.

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