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(September 27,1999) 15 European central banks issue a joint statement limiting their gold sales and leasing over the next 5 years. Gold prices leap by 21.5% in five trading days, and hit $328 during the day Tuesday. Waving goodbye to a 20-year bear market
(September 27,1999) The September 26th announcement by the European central banks was greeted with a great sigh of relief by the gold markets. The possibility of further gold sales from government reserves had driven gold prices down relentlessly for most of 1999, bottoming out at $252.50 this past August.

Outside of Fort Knox, European central banks hold the majority of official gold reserves in the world. Although much of these reserves have been held by these countries for decades, and some for centuries, recent sales by England and proposed sales by Switzerland have spooked the gold markets this year. Gold demand has increased dramatically over the past two quarters, but just the threat of major central bank sales has kept prices down. The following is the text of the joint statement:

The European Central Bank and the central banks of Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, Switzerland, and England:


In the interest of clarifying their intentions with respect to their gold holdings, the above institutions make the following statement:

1. Gold will remain an important element of global monetary reserves.

2. The above institutions will not enter the market as sellers, with the exception of already decided sales.

3. The gold sales already decided will be achieved through a concerted program of sales over the next five years. Annual sales will not exceed approximately 400 tonnes and total sales over this period will not exceed 2,000 tonnes.

4. The signatories to this agreement have agreed not to expand their gold leasings and their use of gold futures and options over this period.

5. This agreement will be reviewed after five years.

And that's the whole statement. It was released on Sunday, September 26th, at the conclusion of the IMF meeting.

Monday saw the biggest one-day gold price increase since 1982. Tuesday, that record was shattered as gold traded briefly at $328, and closed in New York trading at $310.

Tuesday's action was interesting. Basically, two things happened. Gold ran up, its best one-day rise in 19 years. But more importantly, it did it on its own, without an accompanying stock market panic. Stocks were down hard earlier in the day as gold first crossed the $300 mark. But then stocks rallied back, but gold held at $300+, even in the face of a 230-point reversal in the Dow.

Meaning, gold's rally was not the function of a Dow collapse, as it held most of its gains even as stocks rallied back. That shows new strength in the gold market.

With this statement by the world's largest holders of reserve gold, the whole tone of the market has changed. In fact, the net result is that the English and Swiss gold to be sold over the next five years will fetch a higher price. And reserve sales of 400 tonnes a year, combined with current mines output at roughly 2300 tonnes a year, still comes short of current annual demand, which is 4,000 tonnes.

We think it very unlikely that we'll ever again see gold prices as low as they were this past summer.


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