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International Monetary Fund Announces Small Gold Sale
By Patrick A. Heller, Market Update
September 21, 2009
After all the world's gold markets had closed Sept. 18, the International Monetary Fund announced that its proposed sale of 403 tons of gold (12.96 million troy ounces) will actually happen.
This announcement is almost the ultimate trump card released by the U.S. government and its allies trying to suppress the price of gold. In my judgment, it will quickly fail at this purpose.
Through Sept. 18, the price of gold had closed over $1,000 on the COMEX for six consecutive days, including two consecutive Fridays. As each day passes with a close above $1,000, it becomes less likely there could be any significant decline below that threshold.
For the first three trading days after the price of gold closed over $1,000, my own company experienced a huge increase in the volume of sellers liquidating their gold and silver and very little demand from buyers. Since last Wednesday, the sellers have continued actively selling. However, buyers increased their purchases so that net activity was approximately in balance or tilted toward more customers buying than selling for the rest of the week. As I write this, most products are still readily available and a few premiums have even dropped slightly.
The timing of the announcement of the IMF gold sale is almost sufficient proof by itself that this action is an effort to hold down gold prices. Normal market announcements are made when markets are open and there is an opportunity for the market to reflect the impact of the news. If the U.S. government has bad news to release (FDIC bank closures being perfect examples), it is almost always done after markets are closed late Friday timed so that it is almost impossible to make the Saturday news coverage, after which it gets little coverage Sunday or Monday because it is "old" news.
In this particular instance, the announcement was timed to hang over the market for 48 hours until Asian markets opened late Sunday night (in terms of U.S. time zones). With markets closed, buyers were unable to quickly jump in to buy gold and demonstrate the strength of gold demand.
In late April, the Chinese government offered to purchase the entire 12.96 million ounces of this proposed IMF gold sale. In fact, China offered to purchase the IMF's entire gold holdings of around 103 million ounces. With the recent surge in demand for gold from China, India and Russia, it is obvious that the IMF's small gold sale would almost certainly be snapped up by central banks. As a consequence, it is pretty safe to assume that none of the IMF gold would ever be available to private buyers.
However, the timing of the announcement is also highly suspicious for another reason. It came just a few days after Barrick Gold Corp. announced that it was booking a $5.6 billion loss for its hedging activities (possibly exceeding the company's combined profits for the past 20 years) and was technically defaulting on their gold hedges by trying to settle part of them for cash instead of returning the gold as required in the contracts. Such a default could put increased pressure for higher gold prices.
It is possible that Barrick Gold, an admitted close partner of the U.S. government in past gold price suppression schemes, will be bailed out of their current default by being allowed to buy some of this IMF gold. Were this event to occur, it would almost certainly be done for political reasons.
Politicians have been using the threat of an IMF gold sale on the scale of 400 or 403 tons since the early part of this decade. Each time it was obvious (to those who really understand the gold market) that such announcements were intended solely to hold down gold prices. It was also obvious that the IMF was not actually going to conduct a gold sale until just about all other price suppression efforts had ceased to work. To me, the price of gold holding above $1,000 for several days makes the announcement of the IMF gold sale a desperate and near end-of-the-line effort to hold down gold prices.
Earlier this year the IMF had stated that any gold sale it might conduct would be within the limits of the Central Bank Gold Agreement, meaning that the IMF sales would be conducted over a minimum of two years. By giving the world 48 hours to digest the news of the IMF gold sale before any markets could trade, the news media had the opportunity to falsely spread the specter that a large quantity of gold was soon to be dumped on the market.
It is no surprise, therefore, that the US gold market opened this morning slightly under $1,000. As of this writing, the spot price has climbed back above $1,000, prompted by demand from bargain hunters.
I think the announcement of the IMF gold sale will fail at suppressing prices in the immediate and the long term. In the immediate term, the small scale of the proposed sale and the existing demand to absorb the entire amount in one transaction is likely to result in only a temporary dip in the price of gold - that even now may already have passed. In the long term, once the IMF sells this gold they will no longer be able to threaten to sell it.
There is suspicion that the IMF may not have all the gold in its reserves that it claims. In theory, its holdings are stored in vaults in the U.S., Britain, India and one other country. In April 2008, IMF officials responded to questions about the status of their gold reserves. Their answers specifically avoided stating that it had custody of all of its reserves, though the replies were carefully worded to appear to imply that it did. It is entirely possible that some of the supposed IMF gold reserves are being double counted by some central banks as part of their own reserves. Even further, some of these holdings may be subject to other ownership claims. By selling some of its gold holdings the IMF may eventually be forced to accurately report the status of its remaining reserves.
Other developments-
http://www.numismaster.com/ta/numis/Article.jsp?ad=article&ArticleId=7691
By Patrick A. Heller, Market Update
September 21, 2009
After all the world's gold markets had closed Sept. 18, the International Monetary Fund announced that its proposed sale of 403 tons of gold (12.96 million troy ounces) will actually happen.
This announcement is almost the ultimate trump card released by the U.S. government and its allies trying to suppress the price of gold. In my judgment, it will quickly fail at this purpose.
Through Sept. 18, the price of gold had closed over $1,000 on the COMEX for six consecutive days, including two consecutive Fridays. As each day passes with a close above $1,000, it becomes less likely there could be any significant decline below that threshold.
For the first three trading days after the price of gold closed over $1,000, my own company experienced a huge increase in the volume of sellers liquidating their gold and silver and very little demand from buyers. Since last Wednesday, the sellers have continued actively selling. However, buyers increased their purchases so that net activity was approximately in balance or tilted toward more customers buying than selling for the rest of the week. As I write this, most products are still readily available and a few premiums have even dropped slightly.
The timing of the announcement of the IMF gold sale is almost sufficient proof by itself that this action is an effort to hold down gold prices. Normal market announcements are made when markets are open and there is an opportunity for the market to reflect the impact of the news. If the U.S. government has bad news to release (FDIC bank closures being perfect examples), it is almost always done after markets are closed late Friday timed so that it is almost impossible to make the Saturday news coverage, after which it gets little coverage Sunday or Monday because it is "old" news.
In this particular instance, the announcement was timed to hang over the market for 48 hours until Asian markets opened late Sunday night (in terms of U.S. time zones). With markets closed, buyers were unable to quickly jump in to buy gold and demonstrate the strength of gold demand.
In late April, the Chinese government offered to purchase the entire 12.96 million ounces of this proposed IMF gold sale. In fact, China offered to purchase the IMF's entire gold holdings of around 103 million ounces. With the recent surge in demand for gold from China, India and Russia, it is obvious that the IMF's small gold sale would almost certainly be snapped up by central banks. As a consequence, it is pretty safe to assume that none of the IMF gold would ever be available to private buyers.
However, the timing of the announcement is also highly suspicious for another reason. It came just a few days after Barrick Gold Corp. announced that it was booking a $5.6 billion loss for its hedging activities (possibly exceeding the company's combined profits for the past 20 years) and was technically defaulting on their gold hedges by trying to settle part of them for cash instead of returning the gold as required in the contracts. Such a default could put increased pressure for higher gold prices.
It is possible that Barrick Gold, an admitted close partner of the U.S. government in past gold price suppression schemes, will be bailed out of their current default by being allowed to buy some of this IMF gold. Were this event to occur, it would almost certainly be done for political reasons.
Politicians have been using the threat of an IMF gold sale on the scale of 400 or 403 tons since the early part of this decade. Each time it was obvious (to those who really understand the gold market) that such announcements were intended solely to hold down gold prices. It was also obvious that the IMF was not actually going to conduct a gold sale until just about all other price suppression efforts had ceased to work. To me, the price of gold holding above $1,000 for several days makes the announcement of the IMF gold sale a desperate and near end-of-the-line effort to hold down gold prices.
Earlier this year the IMF had stated that any gold sale it might conduct would be within the limits of the Central Bank Gold Agreement, meaning that the IMF sales would be conducted over a minimum of two years. By giving the world 48 hours to digest the news of the IMF gold sale before any markets could trade, the news media had the opportunity to falsely spread the specter that a large quantity of gold was soon to be dumped on the market.
It is no surprise, therefore, that the US gold market opened this morning slightly under $1,000. As of this writing, the spot price has climbed back above $1,000, prompted by demand from bargain hunters.
I think the announcement of the IMF gold sale will fail at suppressing prices in the immediate and the long term. In the immediate term, the small scale of the proposed sale and the existing demand to absorb the entire amount in one transaction is likely to result in only a temporary dip in the price of gold - that even now may already have passed. In the long term, once the IMF sells this gold they will no longer be able to threaten to sell it.
There is suspicion that the IMF may not have all the gold in its reserves that it claims. In theory, its holdings are stored in vaults in the U.S., Britain, India and one other country. In April 2008, IMF officials responded to questions about the status of their gold reserves. Their answers specifically avoided stating that it had custody of all of its reserves, though the replies were carefully worded to appear to imply that it did. It is entirely possible that some of the supposed IMF gold reserves are being double counted by some central banks as part of their own reserves. Even further, some of these holdings may be subject to other ownership claims. By selling some of its gold holdings the IMF may eventually be forced to accurately report the status of its remaining reserves.
Other developments-
http://www.numismaster.com/ta/numis/Article.jsp?ad=article&ArticleId=7691
