Thursday, October 2, 2008

Central banks in Europe favour gold as crisis unfolds

Published: October 03, 2008, 00:13

London: Sales of gold by European central banks are likely to be lower than expected over the next year as the global banking crisis boosts bullion's appeal as a "safe" reserve asset.

And banks elsewhere in the world, most notably in Asia and the Middle East, may even become buyers of gold in an attempt to diversify their reserves away from the dollar, analysts say.

Under the terms of the Central Bank Gold Agreement, signed in 1999 by key European institutions including Germany's Bundesbank and the European Central Bank and renewed in 2004, members can sell up to 500 tonnes of gold a year.

But in the fourth year of the latest agreement, which ended on Friday, sales fell well short of this ceiling, to just over 357 tonnes. With banks worried by the outlook for the financial sector, sales could be even lower in the final year of the pact.

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