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European Central Banks Renew Gold

FRANKFURT (Reuters) 7/08/09.  European central banks have agreed to
extend a cap on gold sales for another five years, but reduced the
maximum of total gold that could be sold under the agreement, the
European Central Bank said on Friday.

Gold prices rose, topping $962 per ounce after the announcement, from
$960.20 per ounce immediately before. Gold was trading at $961.20 by
0845 GMT (9:45 a.m. British time), Reuters data showed.

The ECB said the overall cap on sales in the next five-year period would be
reduced to 2,000 tonnes from the current 2,500 tonnes. Annual sales
would not exceed 400 tonnes, it added.

No new signatories would join the new deal from September, but the
International Monetary Fund's intention to sell gold could be included
within the agreement.

"The signatories recognise the intention of the IMF to sell 403 tonnes of
gold and noted that such sales can be accommodated within the above
ceiling," the ECB said in a statement.

Analysts said the new agreement did not include any big surprises.

"It is not a surprise at all that there is a new Central Bank Gold Agreement
... if only to allow the accommodation of the IMF sales," said Stephen
Briggs RBS Global Banking and Markets commodity strategist. "It is
reassuring that the IMF sales will be within the agreement."

European central banks first agreed to cap gold sales in 1999, an
agreement which has been a key factor driving a rally in the price of the
precious metal over the last eight years.

"Gold remains an important element of global monetary reserves," the
ECB said.

The new agreement starts on September 27, immediately after the current
agreement expires.

Under the terms of the existing five-year central bank gold agreement,
which expires on September 26, signatories can sell a maximum of 500
tonnes of gold per year -- although sales have fallen well short of the quota
in recent years.

As the current annual limit of 500 tonnes was not likely to be reached,
lowering it to 400 tonnes was a good compromise, RBS's Briggs said.

The International Monetary Fund said on July 29 it planned to sell 403
tonnes of gold within the next central bank pact, raising the question of
whether the overall sales cap would be raised, or the limits for other
signatories reduced.

The IMF is not currently a signatory of the pact, but selling its gold within
the CBGA would avoid disruptions to the gold market.

The ECB holds 501 tonnes of gold, according to the World Gold Council,
worth about $15.5 billion (9.2 billion pounds) at current prices, according
to Reuters calculations.

The signatories to the existing deal are the ECB and the central banks of
Italy, Spain, Portugal, Greece, Luxembourg, France, Belgium, Ireland, the
Netherlands, Germany, Austria, Finland, Switzerland, Sweden, Slovenia,
Cyprus, Malta and Slovakia. For details, please see the World Gold
Council's Web site: http://www.reserveasset.gold.org/