Blanchard and Co

Precious Metals Analyst Neal Blanchard says the Italian trading bourse plans to introduce new metals ETF investment products Wednesday, which could place more pressure on metals supplies. Meanwhile, he also expresses concerns regarding recent central bank gold sales announcements.
Read this Mineweb article HERE

Neal Ryan’s daily gold market note for the Blanchard Economic Research Unit today added up the desperation of the world’s central banks to prop up the U.S. dollar system by rigging markets. Ryan finds central bank gold sales of more than 240 tonnes in just the last four months, dishoarding at an unprecedented rate. “Seeing the gold price hold above the $640 level during this period of increased sales should be the best demonstration of just how robust the physical demand side of the market is at present,” Ryan writes…

Just announced this morning was a set of new metal ETF investment products for the Italian trading bourse, set to launch tomorrow. These ETFs are set to be backed by physical metal holdings and will be offered in gold, silver, platinum and palladium. Interestingly, ETF Securities stated in the release that the metal backing the ETFs will not be available for loan into the market, a concern many market pundits have become keenly aware of due to some loopholes in existing metal ETFs. While only time will tell as to how successful each of these ETFs will be on each new market bourse they enter, in tight markets like platinum and palladium, these investment vehicles have the ability to create a real squeeze in the supply available to the market. Even minor success in a handful of new offerings will create more demand than the platinum and palladium markets can currently handle and should push prices higher. Again, the only way for the average US investor to play these PGM markets is to buy the physical metal, futures contracts or a handful of mining stocks. There are no PGM ETFs available in the US.


We are now eleven days away from South African gold production going offline. Keep this issue on the radar over the next week and a half. It will seem like the issue came out of nowhere when it’s the top market news item of the week. Currently, the labor union’s wage demands and mining company’s offers are no where near each other and losing this supply from the market at the same time central bank sales are slinking back off the market will drive prices higher over the summer months.


The ECB weekly financial update showed that this past week, one captive ECB bank sold 1.5 tonnes of gold into the market, continuing the drastically reduced sales trend over the past three weeks from the previous three months. This also confirms that ECB organizational sales have not yet shown up in market figures, despite already having been announced as finished.

Using updated IMF and BIS data on Central bank gold activity in the last four months, we’re finally getting a grasp of the much larger picture of what has been happening behind the scenes in the gold market; with both ECB captive bank activity and outside of ECB banks.

While the Bank of Spain sales, Swiss National Bank announcement and the ECB bullion sales activity has been well documented the last few weeks in the market, what hasn’t been so apparent is the amount of sales coming in from other entities within the market over this same period of time including the Bank of International Settlements, National Bank of Indonesia and Bank of England. (The BOE was not a signatory to the second CBGA, so their sales as well as the BIS and Indonesian sales do not fall under the CBGA 500 tonne annual quota).

Spain: 108 tonnes

ECB: 37 tonnes

France: 29.1 tonnes

Indonesia: 23.3 tonnes

BIS: 22.7 tonnes

UK: 6.5 tonnes

Sweden: 3.3 tonnes

Assorted other central bank sales and ECB sales in June: 10.6

Neither the Bank Of England or the Bank of International Settlements has updated the market as to why they’re now selling gold reserves. As is usually the case, the market wasn’t aware of the Indonesian or BIS sales that fall outside of ECB reports until they were updated a few months after the fact. Because central banks outside of the ECB typically update sales and purchase activity on a 3 month lag, we still may yet find out about other sales that have taken place in the last four months in the market.

240.5 tonnes of sales in 4 months. To put that figure in some perspective; In 2005, central banks sold 674 tonnes (21.6 million ounces) of gold into the market, representing over 16% of that year’s supply side of the market, sales averaging 56.1 tonnes per month. 2005 was the largest year for central bank sales in the last several decades. In the past four months, the market has absorbed 60.12 tonnes per month…possibly even more if some additional sales reports show up in the next few months.

At the risk of sounding repetitive, we feel the need to underline just how important it is to see the gold price hold up while digesting these massive sets of sales. At no point in time has the gold market had to absorb this much supply coming from central banks in such a short period. Seeing the gold price hold above the $640 level during this period of increased sales should be the best demonstration of just how robust the physical demand side of the market is at present.

Blanchard and Company, Inc. is the largest and most respected retailer of American rare coins and precious metals in the United States, serving more than 450,000 people with expert consultation and assistance in the acquisition of American numismatic rarities and gold, silver and platinum bullion. The Blanchard Economic Research Unit is a key source of precious metals market analysis and continues to be an important resource for financial and consumer media throughout the United States. Blanchard and its predecessor companies have called the New Orleans area home for more than 30 years. For more information about the company, visit or call the company toll free at 1-800-880-4653.

Strike another off the list…

The ECB has stated this morning that they have sold 37 tonnes of gold in the last two months, but will make no further sales in the remaining four months of the CBGA fiscal calendar year. This is the type of news we have been waiting for because the majority of sales that have been swamping the market in the last three months have been coming from unannounced sources. The Bank of France has been a steady seller into the gold market, but that has been via an announced sales program, so completely expected. The ECB selling 37 tonnes at the Bank of Spain dumping a mind-boggling 80 tonnes (possibly more when that figure is updated for May), or 25% of their reserves, had been unexpected and thusly impacted prices considerably. I cannot underscore how important it is to understand how Central Bank activity, both expected and unexpected, affects the gold market. The great thing about that is, while they can impact the market a great deal via sales (or not selling), they’re still running quite low on gold supplies and one day in the near future will simply be happy to sit pat on their remaining stock.

Again, we underscore the importance of how well the market has held up under this selling pressure, despite a sag in prices in the last two months. When we had sales that aggregated 95 tonnes over nearly three months enter the market in the Spring of 2006, the price and forward momentum in the gold market fell apart. This spring we had over 130 tonnes of aggregate sales into the market and the price has only fallen from $690-670. It’s been frustrating to see the market struggle with the increased sales levels in a short time period, but as we have continued to pound the table about…these sales are drying up and will be short for the full year, while the price has not suffered as in times past. This is as bullish a signal I can pick in the market currently.

Let’s also not forget, as these sales are disappearing off the market, we’re still looking at the increasing likelihood of a major strike action in the largest platinum and gold producing country in the world. This is indeed going to be a much different summer than years past.


1 June 2007 – The ECB’s gold sales
Over the past two months, the European Central Bank (ECB) has conducted gold sales amounting to 37 tons of gold.
These sales are in full conformity with the Central Banks’ Gold Agreement, dated 27 September 2004, of which the ECB is a signatory.

Together with the gold sales of 23 tons, completed on 30 November 2006, the ECB has thus sold 60 tons of gold in the third year of the agreement, which started on 27 September 2006 and ends on 26 September 2007.

It is not the ECB’s intention to sell more gold in the current year of the agreement.


Gold and silver slump – what’s a precious metals investor to do?

Neal Ryan of Blanchard & Co looks at the factors behind the recent gold and silver price correction and offers advice for the precious metals investor
Author: Neal Ryan
Posted: Thursday , 17 May 2007

NEW ORLEANS (Blanchard & Co.) –

After rising over $3 and $0.10 in Asian trading, gold and silver began getting thumped anew on Thursday at the London open which led to prices taking another sharp turn lower at the NY open.

The market has started trading on technicals rather than any fundamental news, with sell side pressure and shorts currently in control of the market.

So what’s an investor to do?

First and foremost, recognize that a precious metals investment isn’t a day trade. We hammer on this issue to the point of exhaustion because people (present company included) get frustrated, upset, emotional and so on when the prices don’t react the way we believe they should over a short time frame. Step back and look at the larger picture.

Precious metals are a medium to long term investment that is meant to be a meaningful diversification method against paper assets. But no one wants to invest in something that doesn’t earn some return on ca pital. It’s not like someone investing in a car that loses 40% of it’s value when you peel off the lot hoping that if you wait 25 years it’ll have a vintage appeal. The last five years, gold has shown an average annualized return of 19% each year, proving itself to be not only a diversification hedge, but an asset earning a return on investment at the same time. Not too shabby. Prices are up about 4% this year (or 9% if you mark the clock at Jan. 5th instead of Jan. 2nd).

What’s next?

It’s always tough to go out into the market with a prediction. We were wrong about the $700 level in weeks. Not because the fundamentals don’t support that type of move – the fundamental picture for the market is more bullish today for increasing prices than it was just two years ago at $400 per ounce, but the market isn’t trading on fundamental news at present. If it were, news like South African production being down 9% in a quarter compared to the year earlier period would send prices higher; instead the market continued trending downward.

Investment demand has cooled off in the last quarter according to the World Gold Council, but overall demand was still 4% higher. So at a time like this when fundamentals aren’t in control of the market and the little golden bull is having his cart loaded up with a lot of paper to carry forward, investors need to take a step back and look at some larger market trends…

Mine Supply

We are believers that mine supply possibly peaked in 2001, at least until we see materially higher prices closer to 4-digits. Will supply increase off of these current levels? Maybe, sure. But we’re still more than 7 million ounces short in annual production from equaling 2001 production levels. South African Mine spokespeople and Chief Executives of South African companies have publicly stated this past week that these trends aren’t reversing. At this same time, the mega-mines like Grasberg, Yanacocha, and Goldstrike (all outside of South Africa) have gone from annual production figures of over 8 million ounces a year in 2004 between them to 5 million ounces of production annually. There are a few mega-mines waiting in the wings to come in and fill the role of a Goldstrike or Grasberg, but until those mines go online, nothing can be counted on as a given in the mining industry.


We’re heading into another potentially bitter round of wage talks between the South African mining companies and the labor unions. Much like 2004 when a strike took down their production numbers considerably, those in the industry have expectations at present that the new round of talks could have a similar affect. There are also rumblings that Newmont’s Yanacocha mine in Peru could be heading offline as the South African talks begin. Also, the world’s largest platinum miner, AngloPlat, is having similar issues with their labor force, threatening to cause another round of strikes within the platinum producer ranks.

And this is just the crew digging the material out of the ground. A much larger concern is appearing on the horizon in mining offices around the globe with the current set of geologist, engineers and the like approaching a retirement age without any new blood entering the ranks to assume their place.


Dehedging was expected to slow down considerably in 2007 after having added nearly 13 million ounces of unexpected demand to the market in 2006. In reality, the exact opposite has taken place in the market with a spate of announcements in the first and second quarter about close outs and book reductions having added nearly 4.2 million ounces of demand to the market and pushing up overall expectations of hedge book close outs in 2007 to 11 million total ounces from estimates of 6-8 million ounces previously.

While there is no longer an 80 million ounce reduction that can take place in the market (thankfully!), there are still 38 million ounces sitting on books waiting to be dehedged. We believe this number will be cut down to 15 million ounces over the coming 2-3 years. Producers will always keep a nominal amount of project hedges on the book to be prudent, but millions of ounces hedged in the $300s while spot is kicking around $660 is neither prudent nor price protection. Investors have finally been able to press this view upon mining company executives.

Official Sector activity

Despite a strong reversal in selling trends for the calendar year of 2006-2007 in the last two months, it looks like ECB captive banks are still going to be short in terms of overall sales for a second year in a row. In the eight years of the CBGA agreements so far, that was the first time banks had failed to sell their full quota. 2007 looks like it will be the second. The last year has also seen central banks making 31 tonnes of purchases in the market. A fairly insignificant amount to be sure, but nearly 1 million ounces of purchases, is still nearly 1 million ounces of purchases.

According to the IMF, changes set to be implemented into the marketplace in 2008, investors will also begin getting a much larger appreciation for the lease and swap operations that take place inside of central banks. This market, which is estimated to be larger than mine supply, central bank sales, investment demand and scrap activity, will no longer be left to guesswork and estimates. Is the gold really in vaults in London or has it been leased out to fabricators and turned into trinkets in India and 18 carat necklaces in WalMart in Iowa? No one knows.

Current estimates target that there is currently 10% to 30% of central bank gold loaned or swapped into the marketplace. (estimates from GFMS, Virtual Metals and James Turk). When this information is no longer just estimates, but hard audited data, there will be an added transparency to the marketplace that has never previously been experienced. When the markets really know how much physical is in vaults versus IOU slips, that’s when things will start to get interesting.

The trends above are the ones that precious metals investors need to grasp and understand, not the day trading noise out in the market. Take a position, have a long term outlook and understand the fundamental factors that influence the market, not the technicals that are currently controlling the price.
Neal Ryan is Vice President and Director of Economic Research for Blanchard Economic Research Unit (

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.

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.”

Some gold market analysts pretend that the Western central banks have no special influence in the gold market. Today’s Blanchard Economic Research Unit daily note by Neal Ryan describes in detail how, to the contrary, the central banks are the biggest and most influential players in that market, at least for the time being.

From this finding arises the question: Whatever could be their intentions with gold?

And once you’ve accepted the premise that the Western central banks are big players in the market and that they indeed just might have certain intentions, you’re on your way to discovering the secret knowledge of the financial universe, the possession of which is both a vast opportunity and a haunting that is hard to shake. For it puts you a bit outside the world everyone else thinks he is living in.

Ryan’s conclusion today: “The increase in [gold] supply is a temporary phenomenon because of drastically increased bank sales. Sales will moderate and mine supply will still be slumping, dehedging will still be taking place, and investor demand will still be increasing.”


Central Bank Activity – Sales

Comprising nearly 13% of global supply via their annual sales and even the lowest of analyst estimates suggesting that their loan and swap activity is greater than annual mine supply, central bank gold activity is the largest supply side component of the market that is under the direct control of a handful of entities. While it is certainly true that individuals currently hold more gold than the banks (and this trend will never reverse), 20 central banks hold 90% of the bank gold reserves making the collective decisions of these banks much more influential in the marketplace than the decisions of billions of individual investors holding the equivalent of pennies on the dollar compared to bank holdings. While central bank influence on the gold market has dissipated in the past five years, it is still the most significant impact to the supply side of the market as mining companies can’t ramp up enough supply to change annual production figures in a meaningful way.

Case in point, central bank sales in the past 6 weeks. ECB sales were updated today and showed another 12.3 tonnes of gold sold into the market in the past week by ECB captive banks. Remember, this is only an update of ECB banks, not anyone outside of the 14 banks in that union. Adding that 12.3 tonnes to the past 6 weeks of sales and the gold market has absorbed nearly 89 tonnes in the last 7 weeks. For reference, in the previous six months, central banks had sold 112 tonnes of gold into the market. The fact is, these sales have put the market under tremendous pressure, but have not tanked prices as has been the case in the past. While we’ve been saying it for weeks, now Numis Securities and Scotia Mocatta are on board as well. These increased sales levels are giving investors a great entry point because as last year showed, the sales will abate into the summer months.

Central Bank Activity – Loans

The only statistic that can’t be quantified regarding central bank activity is the levels of loans and swaps that have been hitting the market at present. There are several positive changes on the way regarding this lack of information as UK politicians are pressuring the Bank of England to explain their lending activities and the IMF is implementing changes to accounting procedures which will eventually publish lending and swapping totals. As confirmed by GFMS and the LBMA, central banks are receiving next to no return on 3 or 6 month gold loans. Because of the lack of return on loans, these central banks have been entering into contracts that extend out a year and in some cases five years on the loan side of the market. While those lengths earn them an extra basis point, it also extends out the impact to price that those loans have in the marketplace. A three month gold loan might have had a net-net zero effect on the market on such a short term. A year to five year loan does not have the same impact. It might eventually be net-net zero impact, but it’ll take a year to realize that impact. We know 89 tonnes have been sold into the market in the last 7 weeks. How many tonnes have been loaned into the market over the same time period? No one knows except the central banks and bullion banks doing the lending.

Mining Companies

Nearly every producer reporting so far has missed their expected earnings and missed them significantly. We have several more major producers left to report this week. While this is bad news for the stocks with production figures continuing to slide and disastrous hedge positions finally being extinguished in the market, the lower production and increased dehedging in the marketplace is particularly supply side bullish for the market. Gold production has fallen over 8% in the last five years. Gold producers have shown no ability to reverse this trend as production figures are expected to be lower for the year as companies continue to run into the problems of higher costs, fewer exploration areas of size, and the delay in permitting to new projects. Reports out are guessing that this production trend might possibly begin turning around to increase by 2010-2012. Those increases are 4-6 years away assuming they ever come to pass, which we highly doubt.


While there was the expectation this year that the act of dehedging gold would slow in the marketplace, we have see the exact opposite take place as Lihir Gold, Gold Fields, Buenaventura and Barrick have all made major announcements to the market that they have closed out more hedges than expected and are amenable to further closures throughout the year. Though there seems to be a great deal of confusion in the market today, Barrick still has 9.5 million ounces of hedges to be closed out which are required to be covered beginning in 2009 according to their quarterly report. AngloGold has yet to report and has a hedge position currently over 10 million ounces. We have seen some significant reductions already this year and it looks like producers are finally genuflecting to investor interests to rid themselves of these legacy hedge positions. We expect to see some aggressive reductions moving through the remainder of the year.

US Dollar

The dollar’s position is looking particularly tenuous at present with the dollar making all time lows against the Euro several times in the last week and the yen still appearing to be susceptible to some carry unwinding in the future. The current environment seems to be lending itself to tightening of interest rates by the ECB, Bank of England, Bank of China and possibly the Bank of Japan, while the United States is not in a situation in which to raise rates. So even if the US continues to hold rates steady and pushes off a cut, the dollar appears ready to begin declining again versus other currencies because of the growth and inflation being experienced around the globe. Still looming on the horizon is the potential for a currency and protectionist showdown with the Chinese government. No matter what the outcome, there are very few scenarios that will be positive for the dollar if the US pursues this fight.

Investor Demand

The only statistic that can be updated on a weekly basis to gauge investment demand in the gold market is the inflow levels of the gold ETFs. The GLD ETF hit an all time high in terms of holdings 10 days ago. Less demand in the market? The statistics aren’t bearing that out. More supply entering the market? Absolutely.

The increase in supply is a temporary phenomenon because of drastically increased bank sales. Sales will moderate and mine supply will still be slumping, dehedging will still be taking place and investor demand will still be increasing.

Blanchard and Company, Inc. is the largest and most respected retailer of American rare coins and precious metals in the United States, serving more than 450,000 people with expert consultation and assistance in the acquisition of American numismatic rarities and gold, silver and platinum bullion. The Blanchard Economic Research Unit is a key source of precious metals market analysis and continues to be an important resource for financial and consumer media throughout the United States. Blanchard and its predecessor companies have called the New Orleans area home for more than 30 years. For more information about the company, visit or call the company toll free at 1-800-880-4653.

Blanchard Economic Research Unit believes the recent failure by the gold price to break through above the $700 level has been due to the selling of bullion by Central Banks which has depressed the price, but this cannot continue indefinitely.

Neal R. Ryan (Blanchard Economic Research Unit)
Thursday , 26 Apr 2007


It is our firm belief that the reason we have seen the gold market fail to take the $700 level over the past week is due to the continued increase in Central Bank gold sales, specifically those out of the European Central Bank (ECB) system.

Central Banks around the globe can influence gold prices via two methods. CB’s can make outright sales and purchases of gold, or CB’s can loan/swap gold into the market or call those loans/swaps back into their reserves. For the sake of this explanation, we’ll leave the loan/swap segment out because until the IMF changes are implemented in the market allowing for correct accounting of those loans/swaps, we would only be using guesstimates and dumb luck to quantify those levels.

Before the Washington Agreement on Gold (now referred to as the Central Bank Gold Agreement – CBGA) was implemented in 1999, CB’s were free to sell gold willy-nilly into the marketplace with no thresholds on volume or timing. Recognizing that the lack of oversight or control was destroying the value of their gold reserves, the CBGA changed that with signatories agreeing to only sell 400 tonnes annually from 1999-2004. Those levels were augmented in the 2nd Agreement to 500 tonnes annually for the 2004-2009 period. Starting in 1999, CBGA signatories were now restricted to only selling 12.8 million ounces and starting in 2004, 16 million ounces annually into the market. (1 tonne = 32,150 oz.)

Annual supply usually floats around the 120 million ounce level, so CB sales, assuming they fill their allotment each year, represent roughly 10-13% of annual supply into the gold market.

For the first time in the life of both agreements, signatories to the CBGA failed to reach their annual sales allotment coming up nearly 120 tonnes short in the 2006 calendar year. That 120 tonne shortfall in 2006, represented a decrease of about 3.2% in supply into the market.

This 3.2% decrease in supply has come at the same time we’ve seen an 8% decrease in annual mine supply over the past five years, 80 million ounces of demand via dehedging in the gold market, 2nd and 3rd tier central banks adding to reserves and increased investor demand across the globe.

ECB banks have sold over 76 tonnes of gold into the market over the past five weeks. This is in sharp contrast to the past 6 months when ECB banks had sold only 112 tonnes of gold into the market. We believe that we are still experiencing increased levels of sales this week, so we may yet revise the 76 tonne figure higher in the coming weeks. This huge influx of supply into the market has, in our opinion, been the one drag on the market, but it certainly has its upside.

So what’s the upside?

History has shown that pressure is certainly applied on top of the market during each period of elevated CB sales. This can be no clearer illustration than what happened after the Bank of England and Gordon Brown announced they would sell over 400 tonnes of gold reserves, causing prices to hit 20-year lows in what most traders now refer to as the Brown Bottom. In the last decade, we have also seen the Bank of Canada sell off all of it’s gold holdings, the Banks of Switzerland, Australia, Denmark, Spain, Portugal, Norway, Sweden, and France, amongst others, also sell off a major percentages of their gold holdings into the market. The one thing that has held true is that the gold price has continued to bounce back and head higher as these sales have concluded.

In the past, increased sale levels have had a significant impact on the market, most recently when 80 tonnes were sold into the market over 4 weeks in May of 2006, we saw prices fall from $730 per ounce and test the $575 level. To a lesser extent, we saw +50 tonnes of sales hit the market in September of 2006, sending prices from $605 to $565 per ounce. What we are seeing presently is that sales have increased considerably without the bottom falling out of the market as has been the case in the past. The market is experiencing some price weakness as it struggles to continue to digest these massive sales, but the price has continued to trend higher in the face of these increases. This is a watershed event for the market and investors need to understand what this means to them. The days of massive bank sale increases tanking the market are coming to a close for two reasons.

1. The market has finally demonstrated the ability to gobble up these sales and continue trending higher, even if the increased supply is keeping us from the major price increases we have been expecting.

2. Central banks have shown that they are simply running out of the gold they will part with via sales into the market. It is our belief that the Bank of France is the lone seller of any magnitude left out in the marketplace. Other ECB captive banks have completed their announced sales programs. The two others left with any sizeable gold reserves, Germany and Italy, have never sold gold of any significant amount under the CBGA agreements.

When the Bank of France is finished selling which we believe is coming close to being a reality, the market will have potentially lost a large portion (10-13%) of it’s annual supply. We do expect at some point in the future to see CB sales to increase, but not until the price has had another significant increase as well. The IMF gold sales have been trotted out lately to solve IMF funding issues. Without approval from Congress, which we believe is quite remote, these sales will never take place.

While gold sales have increased over the past five weeks, levels should still be short of the annual allotment from the CBGA, the second time in two years. Look at these sales increases as a gift. They are allowing investors to add to metal holdings at lower prices while not tanking the market and causing investors to lose interest. When the banks are done selling, gold will be in the strongest hands, those of individual investors.

And taking a page from history, the gold price will also be considerably higher.

Neal Ryan is Vice President and Director of Economic Research for Blanchard Economic Research Unit –

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