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« Doug Casey on Surviving Financial Apocalypse Now | Main | Randgold CEO sees range bound gold price in 2010 »
Thursday
Mar112010

Competition for the IMF’s Gold?

FED Monetary Base 11 March 2010.JPG

By Jeff Clark, Senior Editor, Casey’s Gold & Resource Report

On February 24, Reuters reported that the Reserve Bank of India was “set to be a buyer” of the 191.3 tonnes (6.74 million ounces) of gold the IMF is selling. Although the bank wouldn’t comment directly on the possibility, they did say, “We are closely looking at the gold market... gold is a safe bet.”

The article then quoted an unidentified official from the China Gold Association as saying, "It is not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility.”

But the next day, Finmarket news agency in Russia reported that China “confirmed its intention” to buy the IMF gold. "Chinese officials have confirmed previous announcements from IMF experts and said that the purchasing of 191 tons of gold would not exert negative influence on the world market.”

While they’ve been silent since, both India and China have publicly hinted they want this latest batch of yellow bars from the IMF. There’s no way to know if a competitive bid would spring up between these two countries, but...can you imagine the ramifications if one did?

When India bought 200 tonnes of IMF gold last November 3, it set off a buying spree that saw gold rise 14.2% in 4 weeks. What if this time around, a couple central banks both want the gold for sale? What if China says to India, “Not so fast, guys. We’d like to bid on that, too...” and word of that clash leaked out?

Pure speculation, of course, but competing for gold purchases isn’t a far-fetched idea. This sale is not pre-arranged; it’s an open market sale. Also, there’s only so much to go around. These two countries have only a tiny amount of their reserves in gold. Throw in the fact that central banks worldwide are already net buyers.

A pretty delicious thought, wouldn’t you say?

The gold price dropped a tad on the IMF announcement, but is up 1.1% since then. It’s pretty hard to make a case that IMF sales will hurt the gold price. As I said a few weeks ago in my dirty jokes column, IMF sales tend to mark bottoms in the price and not tops. The World Gold Council reported that floor traders now consider $1,054 as a floor in the market. Why? That was the average price India paid for the 200-tonnes they bought from the IMF last fall.

Meanwhile, what is our government doing?

See the chart above:

You’ll recall that that big spike in the U.S. monetary base in late 2008 was never before seen in history. The Federal Reserve basically doubled it overnight. Our economist Terry Coxon described it as “beyond unprecedented.”

So, they stopped that insane activity, right? Since December 2008, the monetary base has swelled from 1.69 trillion to 2.18 trillion, a 29% increase and another new record.

Printing paper money vs. buying physical gold. I don’t know about you, but I think I’ll follow China and India’s lead here, even if I have to compete for the price I pay for my gold.

Is $1054 really the bottom in the gold price? Check out our 4 clues in the current issue of Casey’s Gold & Resource Report here risk free.


All the best.
Got a comment then please add it to this article, all opinions are welcome and appreciated.


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Reader Comments (5)

Why does everyone suppose that just India and China wold be interested in buying the IMF gold. Closer to home is the U.S and the U.K. All the FED would have to do is print the money, quietly buy the gold from the IMF then announce it, the price of gold would double, the FED would quietly sell half of the gold to cancel the printed money. By doing this they would have gained half of the gold offered for exactly nothing. The British could do the same. THAT IS WHAT I WOULD DO IF I WAS IN CHARGE OF THE FED OR THE BOE. Roger Levinson.

March 12, 2010 | Unregistered CommenterRoger Levinson

Who says the IMF even has the physical gold? I'll bet you it's still on the Fed. Res. books. Now I see why RonPaul is pushing for a Fed Res audit. It will expose the treasury's nut and shell game. Get us out of the UN and get us back on the gold standard before another country does and wipes out the dollar.

March 12, 2010 | Unregistered CommenterTed

Nobody knows for sure what could be the bottom price for gold, $1054 is just a figure plucked out of the unknown to allow certain persons to take advantage of the situation. It's a money making idea, and it's called trading.

March 12, 2010 | Unregistered CommenterRyszard

How does Russia know what China's gunna do, everyone seems to mention that news release...?

March 13, 2010 | Unregistered CommenterSnakeman

Ted,

Im taking a bit of a punt here, but I thought that the IMF did not have any gold, but they do have a promise of gold from central banks, a tenuous link maybe.

March 13, 2010 | Unregistered CommenterGold Prices

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