Official gold sales head for lowest level since 1994 – GFMS

3rd August 2009 By: Martin Creamer - Creamer Media Editor

JOHANNESBURG ( - Net official sector 2009 gold sales were heading for their lowest level since 1994, precious metals consultancy GFMS said on Monday.

Releasing its official-sector gold activity report, GFMS estimated that net official-sector gold sales in the first half were 39 t, down by a hefty 73% year-on-year.

GFMS anticipated sales of 140 t for the full year, which, if realised, would be the lowest since the 1994 trough of 130 t.

The consultancy put the low first-half figure down to the signatories to the Central Bank Gold Agreement (CBGA) selling only 92 t, 17% less than in the second half of last year, and 43% lower year-on-year.

GFMS said that, as the September 26 expiry of the second CBGA approached, total CBGA sales in the first nine months of the agreement year reached only 140 t, the lowest level since the start of the first CBGA in September 1999.

Countries outside the CBGA bought 56 t of gold.

The year to date, GFMS said, had seen a further fall in the amount of bullion lent to the market by the official sector.

There were two main reasons for the ongoing slide – the level of gold lease rates and the heightened concerns over counterparty credit risk, which were enhanced by the collapse of Lehman Brothers last year.

In the second half of 2009, GFMS expected that central bank sales would remain at the low end of the spectrum, with net supply to the market from this source of about 100 t.

"If our expectations prove correct, this would mean that net official-sector sales in 2009 overall, at some 140 t, would record their lowest level since 1994's trough of 130 t," GFMS said, pointing out that net sales averaged 487 t/y from 1999 to 2008.

"Our second-half forecast is based on the assumption that net sales from within the CBGA will remain low, largely as sales targets are met and new sellers fail to emerge, while net purchases outside the group will keep at modest levels," the consultancy said.

While GFMS had already pointed out that sales from CBGA signatories would see a sizeable fall this year, more recently the low level of sales had exceeded its expectations, with, for example, disposals by the Eurosystem being less than one ton in the first three weeks of July.

GFMS expected official sales to remain "very subdued", owing to the unwillingness of Germany, France, Italy and Switzerland to embark on any new sales programmes.