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How Central Banks Impact Gold Markets

How Central Banks Impact Gold Markets

Tue Nov 27 2018

 

The latest edition of LBMA’s Alchemist focuses on the role of central banks in the gold market. Sylvie Goulard, Deputy Governor of Banque de France, wrote the first article, entitled Banque de France and Gold: Past and Future. According to her, the central bank of France has always been a major player in the gold market. Indeed, in the 19th century, Paris was a major gold centre, while Napoleon (20-franc gold coin) was one of the iconic coins of the 19th and 20th century. And, since its creation in 1800, the Banque de France has held one of the largest gold and silver reserves in the world.

 

Even today, although French people use euro, which is purely fiat currency, the central bank holds about 60 percent of its total reserves in gold! In physical terms, the Banque de France maintains above 2,436 tons of bullion, which places it right behind the podium, as only the US, Germany and Italy (and the IMF) keep more gold in the vaults of their central banks. It means that France’s national gold reserves are valued at around $96 billion, or about 4 percent of the country’s GDP.

 

The interesting thing is that the Banque de France stores its gold in the famous Souterraine, which is a huge underground vault situated 29 meters below the level of the River Seine, street level (or 40 m below the suspended auditorium).

 

Removing the Cloak from Central Bank Gold Operations

 

Another insightful article about the links between central banks and gold is Removing the Cloak from Central Bank Gold Operations by Isabelle Strauss-Kahn, who is a consultant now, but previously worked for the Banque de France, the World Bank, and the Bank of International Settlements.

 

She describes a few interesting periods of the gold market. One of them is the so-called Brown Bottom, or the sale of more than half of the UK’s gold reserves in a series of auctions to be operated by the Bank of England. The price of gold dropped as a result, as the sales exacerbated the fear that some big gold holders, such as European central banks would follow, especially in the context of introduction of the euro, and the price of gold would collapse. This is why the first Central Bank Gold Agreement was signed in Washington DC on 26th of September

 

Source: https://safehaven.com/