08/02/2019 | WILL THE END OF THE WASHINGTON AGREEMENT IMPACT THE GOLD COURSE?
Since 1999, the Washington Agreement has limited Central Bank gold sales, which is ending this year. Will such a decision have an impact on gold prices? These have already reached six-year highs and will also be supported by the evolution of the key interest rate, if the Fed decides to lower it, which is expected.
The Washington agreement came into being following a management error by the UK Central Bank. It had resold a significant portion (nearly half) of its gold stock while gold prices were close to historic lows. At the time, the yellow metal had lost the interest of investors who preferred technology stocks. At the time, the 400 tonnes of gold had been sold at a price of $ 275 per ounce, 5.2 times less than the current price.
Also, in reaction to this cheap sale, the world's central banks had agreed to limit their sales of gold to 400 tons per year. This agreement took the name of the Washington Agreement on Gold, ratified on September 26, 1999. Nearly twenty years later and after three renewals, the agreement was not renewed.
The main reason for this abandonment lies in the fact that Banks are well below the threshold of 400 tons. At present, the trend is rather reversed since they have embarked on a frenzied race to accumulate the yellow metal. In addition to the European and American central banks, other banks followed the trend, including Russia, China and Poland.
This measure sends a strong signal as to the positioning of the central banks in the short or medium term: they will not give up their stocks of physical gold. Such retention can only have a positive impact on the evolution of gold prices in the short and medium term.
Should we follow the example of Central Banks?
Also, faced with the current price increase, the evolution of the interest rate, but also the uncertainty surrounding the Brexit or the evolution of the US-China Commercial War, the moment is well chosen to emulate Central Banks strategy and accumulate yellow metal.
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