The possibility of the International Monetary Fund (IMF) selling 400 tonnes of gold has certainly cast a shadow over gold prices with gold trading at $870.20, down $23.60 as we write. This sale appears to be a foregone conclusion however it will still require the blessing of the United States before it can be implemented.
The G20 concluding statement last week said the IMF is going to raise $50 billion for low-income countries and part of that money is proposed to come from IMF gold sales. IMF Managing Director Dominique Strauss-Kahn said the sales refer to the 403.3 metric tons already under discussion and still subject to U.S. congressional approval. No further sales were planned. Recently reported in the Wall Street Journal.
This sale now hangs over gold prices like the Sword of Damocles, however there should no be shortage of buyers, for instance; other central banks, the Chinese government, Saudi Arabia, Russia, the ETFs, etc.
China alone has almost $2 trillion in its coffers that it has recently asked the United States to protect from further depreciation. Now with China's gold reserves forming only a tiny part of their wealth then they must surely be an interested party for part if not all of this sale, if only to diversify. At todays price 400 tonnes of gold would sell for around $10 to $11 billion which would only put a small dent in Chinas growing pile of US Dollars. We suggest that the rumour of this sale is doing more to lower gold prices than will be inflicted by actual event. A case of sell the rumour and buy the news. However the effect is real as gold is down on the news. Other factors that could now come into play include the broader markets which having had their best month since 1933 could now take a breather an even correct a little adding a negative tone to the investment environment. There is also the 'Sell in May' crowd that may try to get ahead of the own crowd by heading for the exit slightly earlier than usual. Throw in a myriad of other factors and the stage is set for short term volatilty.
However the big picture remains the same in that printing of paper money is now on steroids and therefore diluting every dollar that we have and interest rates cant go much lower, so the return on cash is dismal. Toxic assets are being parceled up and packaged nicely prior to being dumped somewhere, in order to help poorly managed banks stay on their knees and stagger on for awhile longer. As we see it this sale by the IMF will blow over and gold will be back to challenge and supersede its previous historical highs later this year, in the mean time it will be bumpy to say the least and if the pull back is severe enough we will become buyers once more.
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