The recent decline in gold prices and the drain from physical ETFs have been interpreted by the media as signaling the end of the gold bull market. However, our analysis of the supply and demand dynamics underlying the gold market does not support this thesis...
...In previous articles we have argued that Western Central Banks have been filling the supply gap to satisfy the demand for physical gold. ...the official amount of gold held in the Western Central Banks and international institutions like the IMF has been steadily declining since 2000, only to stabilize at around 23,500 tonnes since 2008. Officially, this gold has primarily been sold by continental European Central Banks under what is known as the "Central Bank Gold Agreements" (CBGA) (also known as the Washington Agreement on Gold). Under this agreement (which expires after five years and has been repeatedly renewed since 1999), the "undersigned institutions will not enter the market as sellers, with the exception of "already decided sales" and "The signatories to this agreement have agreed not to expand their gold leasings and their use of gold futures and options over this period"...
How the Gold Market Really Works – And Why the Bears Are So Wrong
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