Financial Times: Spain is finished with gold sales


By Javier Blas
Financial Times, London
Monday, September 17, 2007

LONDON -- The Bank of Spain, the largest seller of gold this year under the central banks' gold agreement, plans no more significant sales of the precious metal, a move that is likely to fuel the recent surge in prices.

People familiar with the pact said Spain's central bank had already achieved the bulk of its planned bullion disposals.

Analysts said the end of Spanish sales could reduce next year's central bank gold sales and improve sentiment in the bullion market just as the gold price is approaching a 26-year high.

The gold price rose on Monday to a fresh 16-month high of $719.65 a troy ounce, underpinned by the weakness of the dollar ahead of Tuesday’s Federal Reserve rate-setting meeting.

The metal is within a whisker of the 26-year high of $730 an ounce it hit in May 2006. However, it is still about $130 below its all-time high of $850 reached in early 1980.

Large gold sales by the Bank of Spain, and lately by the Swiss National Bank, have undermined gold sentiment, analysts said. But the weakness of the US dollar and strong physical demand from India, the Middle East, and China was pushing up prices.

David Holmes of Dresdner Kleinwort in London said that as well as speculative investors, the market was witnessing the resurgence of medium- and long-term investors interested in structured gold products.

Spain has been the largest seller of gold under the current year of the central bank pact which runs to the end of September, according to data from the World Gold Council.

Spain sold about 149 tonnes, or 37 percent of the total 399 tonnes sold by central banks in industrialised countries. The French central bank was the second largest seller with 99.2 tonnes.

The Spanish central bank declined to comment on gold sales.

The central banks' gold pact, which runs until 2009, allows them to sell up to 500 tonnes of gold every year.

While developed countries have reduced their gold reserves, some developing countries have been modest buyers.

Hussein Allidina of Morgan Stanley in New York said official gold demand was coming mainly from oil-exporting nations such as Russia, Kazakhstan, and Qatar, as well as South Africa and Argentina.

"However, there is potential for this modest level of purchasing to increase should countries like China move to diversify enormous US dollar-denominated reserves," he said.

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