ECB (European Central Bank)

The European Central Bank, based in Frankfurt, Germany, is the central bank of the 17 member states of the Eurozone. In the short run, ECB's actions can drive the gold price, but over the long run, other factors appear to be more important.

The European Central Bank was established on June 1, 1998 by the Treaty of Amsterdam. It is headquartered in Frankfurt, Germany and from December 2011 its president is Mario Draghi, former head of the Bank of Italy. Like many other central banks, the ECB is independent.

ECB’s Objectives

  • Keeping prices stable (keeping inflation low) in countries that have adopted the euro.
  • Keeping the financial system stable by properly supervising financial markets and institutions.

Together with the 27 central banks of all EU member states it forms the European System of Central Banks. It facilitates cooperation as well as the implementation of monetary policy.

ECB’s Tasks

  • Setting interest rates.
  • Controlling money supply.
  • Managing foreign currency reserves and buying and selling them in order to keep exchange rates stable.
  • Supervising financial markets, institutions and payment systems.
  • Authorizing the central banks of Eurozone member countries to issue banknotes.
  • Monitoring inflation.

ECB’s Structure

  • Executive Board: Consists of six members (one president, one vice-president and four members) appointed for eight years. Its main task is day-to-day management and implementation of monetary policy.
  • Governing Council: Consists of all the members of the Executive Board plus the heads of the central banks of those countries that have adopted the euro. It defines monetary policy and establishes guidelines for its implementation.
  • General Council: Consists of the President, Vice-President and the heads of the central banks of all 27 member states. It is the ECB’s main advisory board. It coordinates its work and helps to prepare new countries for the adoption of the euro.

ECB’s Official Gold Reserves

Gold reserves are gold held by the central bank as a store of value, as a guarantee of payment to depositors or as a way of securing the currency.

ECB's gold reserves
ECB and gold price

ECB and Gold - Key Link

Investors often ask us if central banks may start selling their gold reserves and ultimately cause decreases in gold prices. The truth is that from a historical perspective central banks are one of the worst investors on the planet (Brown Bottom). They generally buy gold when it is expensive and sell it when it is cheap. As you can see in the two charts above, the value of the reserves increases in euros, but decreases in ounces. The reserve’s value in euros increases along with the price of gold and the amount in ounces decreases as the price of gold increases. When gold prices are high, it stabilizes – central banks stop selling gold.