European Central Bank would no longer renew gold agreement

On Friday, The European Central Bank along with 21 other central banks of the bloc took the unanimous decision of eliminating the gold sales agreement, which would expire on September 26. ECB justified the move saying that the market has matured and doesn’t need the agreement anymore.

The agreement referred as the Central Bank Gold Agreement (CBGA) was first brought into place in 1999  to cap the gold sales undertaken by the signatories collectively in a year. It brought stability in the market for the precious metal. It was introduced as in those days value of currencies were pegged to gold. Central banks did not have much control over the prices going too high or too low. The agreement was originally signed between 15 central banks during an annual meet of International Monetary Fund, which later on expanded to 22. In 2014, the restricting limit on the gold sales was lifted.

The ECB released a statement which said, “Signatories of the 4th central bank gold agreement no longer see need for formal agreements. When it was introduced, the agreement contributed to balanced conditions in the gold market by providing transparency regarding the intentions of central banks.”

It added, “The signatories confirm that gold remains an important element of global monetary reserves, as it continues to provide asset diversification benefits, and none of them currently has plans to sell significant amounts of gold.”

ECB said that it has been nearly a decade that the central banks party to the agreement have sold a significant amounts of gold, as markets are more liquid now. Hence it questions the need for the deal.

It’s absolutely the right decision,” said Natalie Dempster, managing director of central banks and public policy at the World Gold Council told Reuters.

“The biggest change is in central bank behaviour,” she said. “While back in 1999 they were net sellers to the tune of 500 tonnes, last year central banks bought record amounts of gold.”

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