Image by soumit via Flickr
Last Friday, the central banks of Europe extended their landmark agreement on gold sales. 18 national central banks, along with the European Central Bank itself, signed the third Central Bank Gold Agreement. CBGA 3, like its two predecessors, has major implications for gold that investors need to understand.
Due to their propensity to sell gold from their massive hoards, central banks have long sparked fear and suspicion among gold investors. While CBs absolutely add supply, thus weighing on gold’s price, the misinformation and intentional disinformation surrounding these institutions is often way overdone. Instead of fearing them, taking a pragmatic perspective is far more prudent and profitable for investors.
Paranoia aside, ultimately central banks are nothing more than large gold investors. They buy and sell great quantities of gold over long spans of time measured in decades. They manage portfolios of reserve assets, the most important of which is gold. CBs are much like private investors in many ways. They are heavily influenced by popular greed and fear, they strive to maximize the values of their portfolios, and they need to diversify and rebalance these portfolios from time to time.
Central Bank Gold Agreement - GoldSeek.com