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Wednesday, February 17, 2010

IMF Gold Sales Will Jolt Confidence Further


This AFP Report declares that the IMF has decided to pick this very moment to announce further gold sales. They will not be allowed to disrupt the gold market, you understand, and the sales will be made on-market in phases or to governments and central banks if any takers can be found.

This however, as far as the gold market is concerned could not be a worse time to announce, pulling the rug from under what amounts to a very tentative rally. Physical demand for gold worldwide fell by 11% in 2009, while mining supply and scrap reprocessing rose 11%. The market is barely clinging on to its nine year bull phase which saw the price rise from $250 an ounce to $1220 two months ago.

The EU's troubles are ratcheting liquidity pressures onto the IMF, with the PIGS needing major refinancing packages, whether they stay inside the Euro or not. The Euro was held up only for two days by the declaration of solidarity from the EU summit last week, and already this evening, the currency is slipping away under further speculative attack, back at $1.36.

Gold sales could be the last straw that breaks the camel's back, sending commodity markets, many currencies and stock markets back onto a declining basis.

The time to declare sales is in the middle of the bull market, not when the requirement for funds is obvious for all to see. One can never be sure with markets but somehow you wonder how long the risk appetite of the bulls can hold up amongst all the evidence of financial crisis building. Each day that goes by, things seem closer to another earth-shattering financial event. China is reining in lending. The Euro is close to cracking. QE is having to be halted to keep government debts in check. The IMF might well have missed the boat this time, and their ill-timed actions bring the nine year gold rally to a halt.

7 comments:

BrianSJ said...

OTOH it could be read as the last ditch in the various attempts to retain any credibility in fiat currency and stop the price soaring. That would be the gold bug view, and they might be right.

tapestry said...

The IMF cannot use gold to bail out countries. It needs either US$ or SDRs, which is roughly 44% US$, 33% Euro, 11% Yen, 11% Sterling.

It is interesting that the debts of the US government are regarded as manageable because the US can grow at 5% a year, while those in the EU are not, because of its low 1% growth record.

Gold is too volatile in price to be much use as currency. The $ is re-establishing.

Anonymous said...

no offense tap, but you don't know what you are talking about. http://www.zerohedge.com/article/gold-promptly-digests-imf-news-outperforms-dollar

tapestry said...

The higher gold flies the further it will crash. No one knows the future exactly, but no price can be sent upwards indefinitely when demand is falling and supply increasing. World governments have decided to make gold 10% of the SDR, and want gold to be priced higher, but gold is a commodity with a supply and demand pattern which policy cannot override.

The Euro is another creation of bureaucracy. They will all turn to dust. The only question is when.

tapestry said...

I just checked the markets. Gold is flat at $1100 after falling back from $1122. Euro has crashed through $1.35.

You know anonymous, maybe I'm better than we think!

tapestry said...

And Barrick is rushing to cash in on the current gold price selling off its African mines -

http://www.ft.com/cms/s/0/e439a642-1ca1-11df-8456-00144feab49a.html

BrianSJ said...

Not a goldbug but unsure which bureaucracy created gold. Nor why the dollar is immune to turning to dust. There are no safe havens just now (Norwegian Krone in limited amounts perhaps).
FT today has gold as too hot for central banks to buy directly from the IMF. Sounds like a job for the Squid!