Gold trades either side of USD $1300oz as Central Banks sign new Gold Agreement

Gold prices briefly went north of USD $1300oz overnight as the European Central and a handful of other counterparts reaffirmed their commitment to holding physical gold as a key reserve asset, with no major plans to sell large quantities of the metal in the coming years. More on this below

Despite the sweep higher earlier in the day, the rally in metals overnight wasn’t sustained, with gold easing back below US $1300oz to currently sit more or less where it started the week, at USD $1292oz.

Key moving averages are likely to converge further in the coming days, especially if gold stays in its current narrow range, with the 50DMA heading back toward USD $1300oz where it will intersect with the 200DMA.

Back to central banks and gold, and the key highlights from the ECB, Swiss National Bank (SNB) and Riksbank of Sweden new gold agreement (which will last for 5 years) were as follows;

• Gold remains an important element of global monetary reserves.

• The participants in the gold agreement will continue to coordinate their gold transactions so?as to avoid market disturbances.

• The participants currently have no plans to sell any substantial quantities of gold.

Considering the ongoing problems and uncertainty in the Eurozone, its no surprise there doesn’t appear to be any willingness by central banks in the region to part with any of their over 10,000 tonnes of physical gold, which remains a major component of many countries foreign exchange reserves.

Indeed, the last Central Bank Gold Agreement allowed for the sale of up to 2,000 tonnes over a five year period, but in that time, only 200 tonnes were sold, despite rising prices and skyrocketing debt levels (which gold sales theoretically could have helped service).

Unwillingness to sell on behalf of Western Central Banks, coupled with higher demand from Eastern Central banks will provide a major tailwind for gold prices in the coming years, despite the uncertain short-term outlook