HERE’s a turn up. Central banks in the Eurozone are buying gold, not selling it, so far in 2011.
Only by €6 million mind, and all of it in coin according to the European Central Bank’s weekly statements. But even ignoring Estonia’s 0.6 tonne purchase at New Year (its contribution, on joining the Euro, to the ECB’s reserve assets), this net gold buying still stands in sharp contrast to the 1,937 tonnes sold by those same 17 nations over the previous 12 years.
The first net growth since the single currency was launched in 1999 in fact (new-member stockpiles and data adjustments aside), it also confounds those “rumors of rumors” of European central banks selling gold in spring 2011 to help fund the next round of Eurozone rescues.
“Where there’s rumored smoke,” claimed Dennis Gartman of the eponymous letter at the start of June, advising his readers to sell, “there can be actual fire.” Whereas in truth, when there’s a genuine crisis, central banks are loathe to sell gold – as the Bank of Italy proved in summer 2009 (and under the leadership of likely new ECB chief Mario Draghi too).
This year’s small addition-to-date to the Eurosystem’s gold bullion is just shy of 180 kilos by our maths here at BullionVault (that’s 5774 troy ounces in old money). That’s peanuts next to the 150 tonnes bought by emerging-market banks led by Mexico and Russia so far in 2011. It’s also a drop-in-the-bucket, of course, compared to the Eurozone’s joint spending on Greek, Irish and Portuguese bail-outs, let alone the ECB’s swollen balance-sheet. But while seemingly due to active gold coin trading (a common enough sideline for central banks), the real cause of this marginal increase is the historic end of West Europe’s two-decade gold sales. And the cause of that, of course, is the financial crisis creeping ever-closer to the Eurozone system itself.
It’s when everything looks just fine that central banks sell. Put another way, “Who needs gold when we’ve got Alan Greenspan?” as the New York Times asked in 1999. (The answer, of course, was that we all did.)
Either way, the two decades of sales – two decades which followed 20 years of sitting tight during the Great Inflation of the 1970s and ’80s, as our chart shows – are very much finished. Selling gold amid crisis would be to announce the end of the world. And that’s not what central bankers are paid for, even if it is what they seem bent on bringing about.
