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The Washington Agreement Prevents Further Official Supplies of Gold from Reaching the Market! - Official Sales Dwindling too Low?

April 30, 2003

Contrary to market commentary, the Sales by The Portuguese Central Bank were within the terms of the Washington Agreement. Portugal is in line with their Agreement! What does this mean?

What we believe is that these sales are the most dramatic pieces of news to come out of the market for some considerable time. These factors will soon precipitate the steady, or accelerating upward path of the gold price. It is a factor that we had foreseen, but not this early in the Central Bank's timetable. We will probably see our own forecasts made conservative.

We at Gold-Authentic Money have interpreted the Washington Agreement as designed to precipitate an orderly turn in the gold market from a falling price to a rising price.

The market will now seeing confirmation of our belief that the Washington Agreement will prevent "Official" supplies reaching the market, above the 400 tonnes.

The Central Bank of Portugal announced last week that it sold another 45t of gold in March and April. This follows on from 15t sold in late 2002, and 30t sold in February, taking the total to 90t in recent months. Taking into account the 33t Dutch sale, and the express wish of the Swiss to sell 283t this 'WAG'-year (Sept-Sept), the full quota of 400tonnes per annum is now fully accounted for! The only Official Sales that can now take place before September 2003 are the remaining 126 tonnes of the total of 400 tonnes.

The Portuguese sales are believed to be related to options structures entered into prior to signing the Accord in 1999. We have no doubt that these Options were taken into account as the Washington Agreement was being formulated. Indeed the 15 Central Banks made the agreement, we believe with all the previously arranged sales on the table before them. These sales are no surprise to the signatories of the Agreement, unless they were not disclosed at the time, a possibility we find most unlikely.

We would like to re-state our belief that the total sales of 2000 tonnes was confirmation of previously arranged sales and acted as a ceiling on total sales, as we will see now.

Now that the annual Washington Agreement quota of 400 tonnes [including the balance of Swiss sales scheduled for this year] has been reached it will be interesting to see if and how any future price triggers will be dealt with. It is estimated that the Swiss have another 126t to sell by the end of September (a rate of around 6+ tonnes a week), and if Portugal is faced with another 'Put' or 'Call' before then, it will have to be at the expense of Swiss plans. Any postponement of Swiss sales cannot be added to next years sales as this quota is already scheduled up to 400 tonnes. However, it can be part of post-September 2004 sales.

The main immediate point of this news is that Central Bank sales will be limited to around 6 tonnes a week. No more sales can be used to exert any downward pressure on the price, from Central Banks, unless at the expense of eliminating further sales up to September 2003.

This highlights several factors:

  1. We have no doubt that the 15 signatories will keep their obligations under the Washington Agreement, limiting Central Bank Sales to the remaining 126 tonnes, until September of this year..
  2. Portuguese sales were absorbed easily, showing the current market supply requirements are far higher than the remaining 126 tonnes [which, in itself implies a reduction of Central Bank Sales, until Sept 2003] from Central Banks.
  3. Current supplies should prove insufficient to keep the gold price down at current levels.
  4. Those who need to buy at these sort of price levels [Producers who are de-hedging] are now on notice to do it quickly, or pay higher prices. This realisation will precipitate further demand from the largest buyers in the market.
  5. Professional Investors will also realise the supply shortage will precipitate immediate 'forced' demand and take advantage, as will sagacious Speculators.
  6. Further supplies can only come from Dis-hoarded, or Scrap gold. A higher price will be required to inspire these sales.
  7. Physical buyers will also be aware of the supply shortage situation and could well secure supplies in excess of requirements ahead of a price rise.
  8. We have stated that the original Washington Agreement intended to "rehabilitate" Gold as a reserve asset and lay the foundation for its acceptance back into the Monetary system. Part of this rehabilitation would be to allow the price to rise to far higher levels.
  9. The next six months, we believe, will swing the market round from believing that Central Bank sales are just waiting to be dumped onto the market, to the reality that Central Bankers are happy to keep hold of their gold reserves, even as the gold price reaches higher levels.
  10. Unwillingness on the part of Central Bankers to sell gold will grow.

German Sales

The statements from Bundesbank President Herr Welteke, recently stated that there was no firm news on the renewal of the Central Bank Gold Agreement [The Washington Agreement]. This was a "red herring" and was interpreted as this could mean unfettered Central Bank Sales.

He then went on to say that the Bundesbank would only sell Germany's gold, provided he was able to invest the proceeds in income earning assets. He well knows that it would take the changing of the country's laws to stop the proceeds from going direct to the German government [something they need badly.

Secondly it would be amazing if the German government would allow such proceeds to be placed in such high risk, low income earning assets available on any market, currently.

A Diplomat first and foremost, this man clearly told us that German Gold sales were extremely unlikely, whether in the open market of through another Central Bank Gold Agreement.

As to the "red herring" regarding the renewal of the Central Bank Gold Agreement, the London Bullion Market feels that a renewal is most likely and in the interest of a stable gold market and a steadily rising priced one at that.

With Germany unlikely to be a major seller of Gold, and the prospect of France and Italy not selling, the search for a future Official seller of gold will, most likely exclude the major Central Bank holders of Gold. With China and Russia buying gold and China freeing up gold in their country, the penny that gold is a reserve asset of note and to be held, will drop, leaving the shortage in the market significant!

Gold-Authentic Money has issued several articles on what is likely to happen to Official Gold and to the next Washington Agreement due in September 2004.

Julian Phillips is the Founding Partner of Gold Forecaster - Global Watch and Silver Forecaster [incorporating Platinum]. Mr. Phillips analyzes the gold, silver, and platinum market alongside the macro economic currency aspects of these precious metals. He covers the shares involved in these sectors and publishes numerous articles on specialist websites concerning precious metals. Mr. Phillips is also a specialist in Exchange Controls and international currencies. He has qualified to be a member of the London Stock Exchange. His working life has focused on Gold/Currencies/Fund Management and now Silver and Platinum. Additionally, Mr. Phillips has spent some years in capital creation in currency distressed countries through exchange control incentives. Mr Phillips is also the Chairman of Stockbridge Management Alliance Ltd. a company that offers gold storage in a way designed to prevent its confiscation should such an order be issued in any country. His websites are at  and

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