Central Banks and Gold
A central bank is an entity responsible for the monetary policy of its country, or group of
member states (as in the European Union). The central bank's main responsibility is the
management of monetary policy to ensure a stable economy,
including a stable currency. It aims to
manage inflation as well as
deflation.
Furthermore, it will hold
foreign exchange reserves such
as Dollar, Yen and Euro
currencies and official gold
reserves. The banks’ role
as the largest buyers of
physical gold on the planet
makes their decisions to buy
or sell that gold one of the
single most influential aspects
of the market.
The Washington Agreement on Gold
In September of 1999, a number of European central banks made a joint statement concerning their gold
reserves when they announced a joint agreement called the Washington Agreement on Gold (or WAG). This
agreement was a reassertion of gold as a viable element of their monetary reserves, a method of adding
transparency to the banks' gold sales and also an agreement to limit those sales over a 5-year period. The
WAG was extended for an additional five year term in 2004, again with the purpose of limiting gold sales
by central banks and continuing the transparent sales process. The current Washington Agreement is set to
expire in 2009.
