Means of Gold Market Intervention I: Sales

Sales are the most obvious means of impeding a price increase. Over recent decades the central banks mainly acted in the role of sellers (only fairly recently a few central banks have increased their gold reserves to an appreciable extent). Central banks used to sell up to 600 tons of gold per year. This amount must be considered in relation to annual consumption of approximately 2,400 tons. There can be no doubt that sales of this magnitude exert considerable pressure on the price. Without them it would have been decidedly higher. There are certainly a number of motives for a central bank to engage in gold sales. For instance, gold lying in a vault doesn’t earn interest. Measured in currency terms (such as the US dollar), there are exchange rate risks, as gold’s price can fall. It is, moreover, possible that gold is seen as making up too big a portion of reserves relative to alternative investment assets. A central bank that sells gold, therefore, does not necessarily do so because it wants to influence its price. Figure 9.1 lists the gold sales by central banks (the amounts are different from the officially reported ones, as GFMS, a research house specialising in precious metals, estimates them by including additional information).