IMF Announcement on Completion of Gold Sales Due Soon


"Now, the main driving force behind gold's price rise is from central banks."

At the end of October, the IMF had 32.7 tons of gold left to sell. In September, it sold 32 tons of gold and in October 19.5 tons, in the open market. Should it continue selling at the pace of September, we would expect to hear the announcement in December and probably in the first half of December. If it continued the slower pace of selling as in October, we will have to wait until January 2011 for the announcement. We believe that this is significant because it will signal the real end of official selling of gold. The signatories of the Central Bank Gold Agreement, with the exception of small deals in coins, have not sold for over a year now. With the completion of the IMF sales, the annual 400 tons of 'official' selling will not be available to the market.

We believe it has stopped selling as we look back on its activity in the last year. We accept that it still has a 'ceiling' of 400 tons sales a year, but this is now simply a gesture. Central banks are solid buyers, primarily taking up their own local supplies first. We have to consider that more and more gold-producing countries may well buy their own local production further reducing the supply of gold to London and other markets.

We should also now accept that the main driving force behind the gold price rise is from central banks, with other investment demand following.

Investment Demand Changes

At this point we should again be careful to note that more and more investment demand not only from Asia but in amongst the Western institutions, is not with a profit in mind. Their investments are becoming more and more because of the instabilities and uncertainties that surround the developed currency world. It is becoming more and more difficult to value assets internationally with currencies swinging backwards and forwards as they are now. Gold is a better place to hold wealth in these stormy days.

All from the head of the World Bank down are also aware of the useful role that gold can play in acting as a 'value reference point'. Should this happen gold will have returned to the world of money in real terms, albeit in a slightly different role to the one it had in the past. We termed this in earlier issues of the Gold Forecaster as gold no longer being a 'means of exchange', but as a 'measure of value'.

What Happens to Demand with a 400-Ton Drop in Supply?

A 400-ton drop in supply in a balanced market will pressure the demand side to find more gold.
  • With mine supply pretty inelastic there will be only a small additional flow from that source.
  • With jewelry demand in the developed world back to former levels, only much higher prices will deter them.
  • With industrial demand [particularly electronics] now a necessity, demand is unlikely to be deterred by higher prices.
  • With demand in India after an excellent monsoon and good harvests and GDP growth at 8.9% Indians are keen to buy at these prices and will not be deterred except by sharply higher prices.
  • With the Chinese middle classes expanding rapidly as that country continues to develop, demand from there will continue to grow and most likely irrespective of the rising gold price.
  • Central Bank demand is unlikely to abate no matter what the price, because their interest is solely in acquiring tonnages of gold. We note that as part of their ongoing program of gold buying Russia also bought 18.66 tons in October [against the IMF sale of 19.5 tons]. Not only are they buying local production but are present in the open market.
Consequently, the only additional source of supply will have to be scrap supply or supply from current holders. So, we ask: "At what price will current holders sell?"

Scrap Supplies the Only Source Left, but at What Price?

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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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