Bundesbank - Gold ingot ©Nils Thies

Gold agreement not being extended by central banks

The European Central Bank (ECB) and the 21 central banks that are signatories of the fourth Central Bank Gold Agreement have decided not to extend the agreement. The agreement, which was first signed in 1999 and runs until 26 September 2019, was designed to coordinate the gold sales planned by the central banks, including those of the Deutsche Bundesbank. According to an ECB press release, a formal agreement is no longer needed as the market has developed and matured. The ECB added that “gold remains an important element of global monetary reserves”.

Background: Stabilisation of the gold market

With this agreement, the signatories committed themselves to putting no more than a predetermined maximum amount of gold on the market over the contract period. The aim was to stabilise the gold market by creating transparency regarding central banks’ intentions. The agreement was initially between 15 central banks but the number of signatories has meanwhile increased to 22. Since 1999, the agreement has been extended three times, in each case for five years, with the conditions becoming more relaxed over time. 

Significant increase in price of gold

The contracting partners now no longer see the need for a new agreement. “Since 1999 the global gold market has developed considerably in terms of maturity, liquidity and investor base,” the ECB states. The price of gold has also gone up significantly since 1999. Furthermore, over the past ten years, the central banks have not sold any significant amounts of gold, meaning that the contract volume is far from having been exhausted (see chart). 

European gold sales within centra bank gold agreement

Central banks have now become net buyers. The Bundesbank itself sells no more than minor quantities of gold each year to the Finance Ministry. The Ministry uses the precious metal to mint commemorative coins.