Not many have ever heard of the Central Bank Gold Agreement, CBGA, also called the Washington Agreement on Gold, but it’s an interesting side note to the history of government manipulation of gold markets. The agreement was first signed in 1999 and was renewed for five-year terms in 2004, 2009 and 2014.
The signatories included central banks in France, Germany, Italy, Netherlands and Belgium and the European Central Bank as well as non-eurozone central banks in Switzerland and Sweden. The U.S. was never a member of the agreement, but it did supervise the implementation of the agreement closely as did the Bank for International Settlements (BIS).
The CBGA is a gold seller’s cartel similar to the notorious “London Gold Pool” of the late 1960s. During the long gold bear market (1980–1999), central banks were active sellers of gold. There was some fear that the selling would spin out of control and hurt the value of remaining reserves more than was already the case.
The CBGA set limits on total sales and individual sales by member countries as a way to allow some ongoing sales without sinking the entire market. There was only one problem. The sales had largely dried up by the time the agreement was put in place.
After “Brown’s Bottom,” named after U.K. Chancellor of the Exchequer Gordon Brown, who sold about half the U.K.’s gold reserves at an average price of $275 per ounce between 1999 and 2002, there were few significant sales of gold by the CBGA signatories except for 1,000 tons by Switzerland in the early 2000s and 400 tons by the IMF in 2010. There have been no sales by any signatories since 2010.
The agreement is up for renewal in 2019, but it has long been a dead letter. Now, as reported in this article, the agreement is being allowed to lapse. Of course, other central banks, including Russia, China, Vietnam, Turkey and more, have been voracious buyers of gold since 2009.
As of now, the age of central bank gold sales is officially dead and the age of central banks as gold buyers has returned. This is just one more reason why gold prices have been on a tear.
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