Completion of IMF Sales Will Lower Gold Supplies


"The future is so uncertain one cannot be sure of the value of any currencies."

The IMF announced that it sold 32 tons of gold in September, including the 10 tons to Bangladesh. This leaves around 71 tons left to go and we have passed October now. If the IMF sells a similar amount in October, then we are down to just below 40 tons remaining for sale. And if the IMF continues this pace of selling, it will be left with less than 10 tons to sell in December and complete sales before the end of this year.

We have no reason to believe that the central banks in the emerging world will then cease buying, so where will they get future stock? These buyers are not price sensitive, so they'll have to attempt to buy in the open market where they cannot buy their own local production. If more central banks than those present now in the open market arrive, they will not be able to use the 'limit' order system to buy gold only when offered. The bullion banks will be able to ask for better offers simply by placing it in the gold fixing and waiting for the best offer to arrive. This will turn central bank buyers from 'passive' buyers into 'active' ones.

Why Did Eastern Central Banks Buy Gold from the IMF?
It would be easy to assume that central banks will not buy more once the IMF completes its sales. Central banks have been the main buyers of this gold with three taking 222 tons and unknown buyers taking the balance. We have to ask: Did central banks take this gold just because it was there, presented in a way that they could acquire it without disturbing the gold price? Did their belief in a future time when it would help them with problems in dark days influence them? Or did they buy it because it is a good investment and counters the decline in currency values they fear might happen. All these motives are good ones and justify conservative central banks buying of gold.

However, there is one aspect that has not really considered. You will note that the central banks that bought this gold were from Eastern emerging nations. Primarily, they were nations stemming from or part of the Indian subcontinent. These nations have always respected gold and considered it money without wavering over the centuries. They have never been totally convinced that paper money is 'as good as gold,' as the West has.

They are all part of the emerging East and are fully aware that wealth and power is moving eastward. It is a completely logical step to believe the power the USD now holds will move eastward to some extent. With the stresses and strains this process will entail, it is likely that Eastern currencies will rise in importance, as the dollar declines. It makes sound investment sense now to lower their dependence on the USD and diversify into other currencies. But which ones? The future is so uncertain one cannot be sure of the value of any currencies. It makes good sense to turn to gold, which history has shown rises in value and usefulness in such days.

Will Central Banks Cease Buying After IMF Sales Are Complete?
Now that they have these amounts in their reserves, will they cease buying? We think not, but any desire to buy more will have to be tempered by the affect their buying in the open market will have on prices. As discussed, the concept of 'limit' buying will have to give way to a more direct and active approach if gold is to be bought successfully. If there are several central banks present in the market at the same time (we hear that Bangladesh is in the open market still), they will never chase prices but will lift the limits on their buying to cause a slightly faster rise in the gold price. This will allow other investors to come into the market, but they will have to chase what remaining stock there is with higher prices.

How Will a Cessation of IMF Sales Affect Gold Supplies?
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Legal Notice/Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina only and are subject to change without notice. Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report.

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