Commodities | Aug 16 2006
By Rudi Filapek-Vandyck
US based market analyst Dennis Gartman is positive on gold longer term, he has been for a while now. Yesterday he cut his market position in half. A decision, he wrote in his daily newsletter to subscribers, that was not made easily, nor happily.
So what caused Gartman to substantially reduce his exposure to a commodity he believes should only go up in value over the longer term?
It’s that same old nemesis again: the central banks.
Under the Washington Agreement, Gartman reminds us, the legacy central banks of Europe have the right to sell up to 500 tonnes of gold each year. Under the agreement each year ends on September 30th.
As of the end of July, official gold sales under the agreement amounted to 331 tonnes. This still leaves a sizeable portion unsold. This cannot be rolled into the following year.
This means there are only a few weeks left for the central banks to dispose a large amount of gold.
(We probably don’t have to elaborate any more about why he made the decision to cut his exposure).
So what’s holding back the central banks? Why haven’t they been selling more over the past eleven months?
Gartman believes the cause lies in the dispute between the German central bank and the country’s ministry of finance. Both have been unable to agree on how and for what the proceeds of further gold sales should be used. As a result of this, the German central bank has refrained from selling any of its gold.
Gartman believes it is but logical to assume other central banks will jump in Germany’s space.