The Bank of Spain announced yesterday on their website that they have sold 2.6 million ounces of gold (approx. 81 tonnes) into the market over the past two months, giving no update on if those sales were expected to continue or not.
This figure means that Spain has sold off 20%(!) of their total gold holdings. The motivation behind or timing of the sales are not important. What is important is that we have this data now which gives a firm explanation of why the market is having trouble moving higher.
Unfortunately, the market will continue to come under this supply increase pressure until it becomes clear that the selling has slowed down. The real positive to take away from these increased sales is that the market is struggling to consume the additional physical supply, but it’s not breaking underneath this pressure.
May of 2006, the market broke under less pressure. We’re not seeing that at present. Below is a quote from Bill O’Neill at Logic Advisors from an article yesterday about the increased sales.

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Sales by central banks in Europe in the second quarter have kept gold from breaching $700, O’Neill said.

“I don’t think they’re going to violate their agreement,” O’Neill said. “Their selling has put a little bit of a top on the market in front of $700.”