And here’s where they fit in the overall supply picture today:
The above charts show central banks (which are euphemistically called the “official sector” by the London-based World Gold Council) putting out a “negative supply” of some 148 tonnes. Compare that with the demand chart, and central banks’ buying has been a bigger factor for gold prices than all of the technology and industrial applications, and twice the size of healthy ETF demand for the quarter.
So what’s going on, and how did we get here?
Before 2000, the world’s central banks – dominated by Western central banks – controlled roughly one-third of the above-ground gold in the world. There was concern among economists, bankers and politicians that the actions of one central bank could cause huge swings in the price of gold, and that unchecked, this could be a bad thing. So in 1999, the first “Central Bank Gold Agreement” was signed. The agreement acted as a kind of ceiling on the amount of gold that any country that signed the agreement could sell each year.
When the first CBGA expired, a second five-year agreement was signed, and in 2009, when CBGA 2 was signed, a third one was signed. And if you look at the actual sales by these European central banks, it seems like the limit made sense once upon a time.