Gold May Touch New High if IMF Sells in Bulk

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"Reports of a return to the long side by speculators will encourage the gold bulls. . ."

Gold prices may attempt a new high if the IMF manages to sell its 'on offer' 191 tons of gold in bulk this year, said a top fund manager who invests primarily in gold mining companies.

The average gold price should rise at least by about 20% over last year's average price ($1,073/oz.) even if the IMF decides to quietly release its reserves into the market at the rate of a few tons a month, Kevin MacLean of Sentry Select Capital Corporation.

Though no country has offered to buy the IMF gold, there is news that China or India are interested in the offer. "Gold will continue to follow the trend it has followed for the past five years," MacLean said.

Gold averaged $1115.73/oz. yesterday. Last year it touched $1,245/oz.—the highest price attained so far.

The prime factor driving gold prices today is not demand for investment but a drive by the governments of Russia and China to shore up their gold reserves by 20% every year, MacLean said. "They are taking all their domestic production into their reserves. China has a little over 1% of its reserves in gold now and plans to raise it to 15%. Russia is also amassing gold to hold on to its policy of moving away from the dollar."

In the long run, gold could further find support in economies like the U.S., being forced to return to the gold standard. "The U.S. federal debt outstanding is increasing at a rate of $2.2 trillion every year. In five years, the cost of borrowing may become very difficult for them unless they back their loans with their gold reserves," MacLean said.

"Reports of a return to the long side by speculators will encourage the gold bulls and chart watchers will be looking for a test of resistance pegged at $1,030, the top end of the recent technical trading range with support at $1,075 setting the downside parameter on the charts," Jeffrey Rhodes of Dubai-based INTL Commodities.

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