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European central banks may sell as little as 250 tons of gold per annum, instead of the maximum of 500 tons per annum, as per the second European Central Bank agreement, from 2004 through to 2009, London-based UBS analyst John Reade said in a note on Friday.

"This reduction would compensate for reduced producer dehedging and the slowdown in physical demand that we expect — although the signaling impact of such a decision would be the greater than direct volume," Reade added.

In March 2004, 15 European central banks, meeting at the Bank for International Settlements in Basel, Switzerland, agreed to restrict their gold sales to 500 tons a year or a total of 2500 tons from 2004 to 2009.

"If this view proves correct, we will adjust our gold price forecasts. These currently see gold ending 2004 at $450 a troy once and peaking at $470/oz in early 2005," he said.

"We now doubt that the renewed agreement will actually lead to an increase in sales by central banks. Rather, we believe there is a strong possibility that the signatory central banks could end up selling materially less gold between 2004 and 2009 than the 2000 tons they sold under the terms of the first (central bank) agreement," Reade stated.

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