Europe central banks to miss gold sale quota again

By Atul Prakash - Analysis

LONDON (Reuters) - Europe's central banks are again likely to sell less gold this year than an agreed annual limit of 500 tonnes, despite a pick up in recent weeks, analysts say.

And there are mixed views on whether the banks would agree to another five-year pact after two such agreements, which began in 1999 to regulate bullion sales by the 15 signatories.

The pace has risen in the recent past due to higher sales by Spain's central bank, but total selling during the current year, which ends in September, is estimated between 380 and 420 tonnes, against 396 tonnes last year and 497 tonnes in 2004-05.

The weekly average sales have more than doubled to about 12 tonnes in the last 10 weeks from nearly five tonnes in the first 24 weeks of the third year of the Central Banks Gold Agreement (CBGA), mainly due to 80 tonnes sales by Spain in March and April. Total sales by all banks now stand at around 250 tonnes.

The Austrian central bank said on Thursday it sold 14 tonnes of gold from its reserves in 2006.

"Overall, CBGA sales are most unlikely to be maintained at this recent rate. However, we could end the agreement year a bit above 400 tonnes, rather than at or below the level," Philip Klapwijk, chairman of metals consultancy GFMS Ltd, said.

Analysts said that probably a few banks were in a hurry to sell to maintain the ratio of gold in their total reserves, but most others would go ahead with their announced plans.

Gold's share in the reserves of central banks has risen in the past years due to a sharp rise in gold prices and a drop in foreign exchange reserves at some central banks following their current account trade deficits, analysts said.

Gold XAU= surged to a 26-year high of $730 an ounce in May last year and was down at $656.15/656.65 an ounce by 0822 GMT

on Thursday. The price has more than doubled in the past five years.

"At the current rate, they would not reach the allowance but would sell approximately 380 tonnes," said Suki Cooper, precious metals analyst at Barclays Capital.

THIRD GOLD AGREEMENT?

There was a case for the European banks to have another pact after the end of the current agreement in 2009, but some banks might prefer an unrestricted sales environment, analysts said.

"I do think there will be another agreement, because if not, then it creates uncertainty again in the market," said Stephen Briggs, economist at SG Corporate and Investment banking.

The pact was first negotiated eight years ago to stabilize prices when gold was languishing below $300, partly because of frequent central bank selling. The current pact, agreed in 2004, raised the limit on gold sales over five years to 2,500 tonnes from 2,000 tonnes in the 1999-2004 period.