European central banks recommit to gold, price won't budge

The price of gold briefly scaled the $1,300 an ounce level on Monday after Europe's largest central banks renewed an agreement not to sell "significant" holdings of the precious metal for another five years.

In a joint statement, the signatories to the Central Bank Gold Agreement said they "will continue to co-ordinate their gold transactions so as to avoid market disturbances” and pledged that "they do not have any plans to sell significant amounts of gold".

The further extension of the original 1999 agreement did however do away with the cap on sales by Europe's 17 central banks which had been pegged at a maximum 400 tonnes over a five-year period.

“This is extremely positive news for the global gold market, especially against a backdrop of ongoing gold purchases by emerging market countries,” said Natalie Dempster, the World Gold Council’s managing director for central banks and public policy.

“It underlines the commitment to gold that European central banks continue to have with regard to their monetary reserves. Of equal importance is the message it sends to gold-producing countries, who can be reassured that their economic development will not be undermined by uncoordinated sales of gold.”

In 1999 gold was trading at around $240 an ounce, and persistent central bank sales took much of the blame for the low price. But in recent years the official sector have become net buyers, making the agreement largely superfluous.

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