Almost exactly ten years ago, in early September 1999, the IMF proposed to change the valuation of "their" Gold to reflect market prices. At the time, the IMF was valuing "their" Gold at $US 46 per troy ounce. The Gold was not actually "their" Gold but remained the property of the nations which had originally "contributed" it to the IMF. At the time, the spot future Gold price had been languishing in a tight range between $US 250-260 for about a month. The Bank of England had recently begun Gold Auctions. For the preceding three years, the market "price" of Gold had been hammered down by main force and the global financial powers that be were starting to be concerned about how much longer it could be KEPT down.
On September 25-26, 1999, nearly ten years ago, the G-7 conducted their annual meeting as a prelude to the IMF and the World Bank meetings in Washington DC. As this meeting was breaking up, the Europeans dropped a bombshell. They announced on September 26, 1999 that over the next five years, the European nations would not expand their Gold leasings or their use of Gold futures and options and that they would limit their total sales of Gold to an amount not exceeding 400 Tonnes (12,860,000 troy oz) per year.
This announcement, which was quickly dubbed "The Washington Agreement", fell into the hollow space between the G-7 and IMF/World Bank meetings. Its immediate result was a HUGE spurt in the Gold price. September 26, 1999 was a Sunday. On the previous Friday, September 24, 1999, spot future Gold had closed at $US 269.80. Within two trading days, the intraday high had soared to $US 329.00 - a rise of almost 22 percent. To grasp how big that rise is, add 22 percent to to CURRENT Gold prices and you get a level of just over $US 1171.
The original Washington Agreement was signed by fourteen European nations, including England. Please remember that in September 1999, the Euro did not yet exist as a circulating cash currency. That began in early 2002 - at the start of the long US Dollar slide which is still continuing.
Five years after the original agreement, on September 27, 2004, the Washington Agreement was rolled over to a second five-year term. The signatories to this "Joint Statement on Gold" had changed slightly, the notable difference being the inclusion of Greece and the EXCLUSION of England. The other difference was that the maximum annual sales by all the signatories were increased by 25 percent. from 400 Tonnes to 500 Tonnes (16,075,000 troy oz) per year. By this time, the Euro WAS a circulating currency and was making inroads into the US Dollar's sole global reserve currency status. The US Dollar itself was firmly on the slide, having been falling on its trade weighted index (the USDX) since early 2002.
This Friday, August 7, 2009, the European Central Bank (ECB) released a "Joint Statement On Gold" for the third time.
All the signatories to the 2004 agreement were represented with three more added. The only difference is that the amount of Gold to be sold annually under the agreeement reverts to its original level of 400 Tonnes a year. A new clause in this "European Five Year Gold Plan - Mark III" makes this 100 Tonnes per year cut even more significant.
"The signatories recognise the intention of the IMF to sell 403 Tonnes of Gold and noted that such sales can be accommodated within the above ceilings."
So, the Europeans can "accommodate" the potential sale of 403 tonnes of IMF Gold while at the same time reducing the annual "ceiling" on their own Gold sales by 100 tonnes per year for the next five years. Clearly, the European central banks do not contemplate selling a lot of Gold between now and 2014. In fact, the Europeans have been cutting back Gold sales for some time. Over the last full year, Gold sales from this source have been 73 percent below their levels of the previous period. Cumulative European central bank gold sales have failed to reach the Washington Agreement limits every year since 2005.
The IMF "plan" to sell this 403 tonnes of Gold has been a recurrent theme for a number of years now, being trotted out at "convenient" times - for example, when Gold reached the $US 1000 level in March 2008 and again in February this year. But what was a nebulous threat before gained substance back in June this year when the US Congress passed legislation which permits American representatives to the IMF to agree to the sales.
As one Gold analyst in London said: "It's positive for Gold". So it is, although the huge global money printing exercise which has thus far held the global recession at bay - at least on the paper markets - is much more positive for Gold.
And there is something else which is positive for Gold. This is the statement with which the Europeans have begun the press release announcing each of the three five-year "tranches" of the Washington Agreement. They repeated it on August 7:
"1. Gold remains an important element of global monetary reserves."
Please note this. Ever since President Nixon closed the "Gold Window" in August 1971, Gold has explicitly NOT been recognised as an official or for that matter unofficial element of the monetary reserves of the US. And - under Article IV2b of its founding Charter, the IMF forbids member nations from having Gold connected to their currencies in any form whatsoever. The reason for this is to make sure that Gold cannot be seen as a reserve asset and, even more important since August 1971, that there is no chance that any IMF nation currency (including that of the US) will be redeemable (as all once were) in Gold.
The US does NOT recognise Gold as a "reserve asset". The ECB and the European central banks do. The US Dollar is not redeemable in Gold by anybody. Nor, we hasten to add, is the Euro or any other global currency. But the Euro - and several other major world currencies including the Rouble and the Chinese Yuan - is one big step closer to being redeemable in Gold than is the US Dollar. This is so simply because the nations which issue this currency DO officially recognise Gold as "an important element of global monetary reserves".
(Chart appears here in original analysis)
A new low was hit on the chart when spot future Gold closed in New York at $US 705 on November 13 last year. This pushed the chart two "Xs" below the $US 715 support level established in late October and equalled early in November. Then came the first big turnaround - and upturn on the chart - of November 14. The region between $US 700-720 firmed as SOLID support for Gold. That support "zone" was emphatically confirmed as Gold rose by just over $US 110 between November 13 and November 28 last year.
On February 20, as you know, Gold made it all the way back to its previous all time highs. But it did NOT break through the $US 1000 barrier. Since then, Gold retreated to just below the $US 900 level in three moves down. What is being traced out on this chart is a gigantic "reverse" head and shoulders formation. The trading range between $US 900 and $US 1000 was broken early in April. Over the month of April, a tighter range between $US 870-910 was established. Gold went straight up on this chart for six weeks - from the start of May until early June. The close below $US 955 on June 9 turned the chart down. Six weeks later, Gold falling just below the $US 910 level. Last week, we had the upturn we've been waiting for on this chart. And this week, despite all the frenetic action during the week, the chart has not budged. The question now is how much longer will the right "shoulder" of the immense reverse head and shoulders on the chart last.
We began the table below in 2007 and have extended it into 2009, even though Gold in all four currencies in the table remain well above their 2006 highs. The all time highs for Gold which occurred in 2008 have remained intact in US Dollars and in Yen.
But in terms of the Euro and especially the Aussie Dollar, the situation is very different. Gold hit new all time highs in both currencies on January 30 with situation being duplicated by Gold in terms of MANY other currencies. On February 20, those highs were taken out when Gold hit $US 1000. They were not taken out when Gold hit $US 1000 again in May. Right now, Gold in US Dollar terms is much closer (about 5 percent) to its all time highs than it is in terms of any other major currency..
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