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U.S. Dollar Performance
January 4, 2007

Will any European central banks switch to buying gold as an alternative to the dollar?


“Euro bank breaks rank, buys gold

The revelation that a member of the European Central Bank system had begun buying bullion, the first such purchase in years, has provided a further push to the gold price.

The ECB's family of 12 banks have been major sellers of gold since the launch of the euro currency in 1999, helping to drive prices down to a 20-year low at the start of the decade.  Constant ECB sales have capped rallies.

Any indication that Europe's big guns are at last switching to the buy side, even if tentatively, could have a profound effect on investor psychology at a time when central banks worldwide want alternatives to US dollar reserves.

The ECB said on Tuesday that one of its member banks bought gold in the week ending December 22, 2006, but it did not identify the amount or country.  The news helped lift gold $US4.10 to more than $US640 a troy ounce.

Euro banks have bought gold before - in July, for instance - but past purchases involved coins bought from Greek citizens under a scheme run by the Greek national bank and did not signal any change in strategy.

The latest purchase refers to bullion reserves, suggesting one of the euro-zone banks may have broken ranks, countering the pattern of sales by the Banque de France, and the Dutch, Spanish and others.

Analysts said the Bank of Italy was a possible candidate.  Rome has not sold any gold so far and stunned investors by switching 20 per cent of its reserves into sterling in 2005, a move that reaped fat rewards as the pound surged to 14-year highs against the dollar.

Under an agreement, a group of 15 European banks are limited to sales of 500 tonnes a year. They fell far short of their quota last year for the first time.

An ECB spokesman called the latest purchase an end of year ‘technical’ adjustment."

*This information is solely an excerpt of a third-party publication and is incomplete. Please subscribe to the referenced publication for the full article. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

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