Completion of I.M.F. Sales Will Lower Supplies of Gold

The I.M.F. announced that 32 tonnes of gold was sold by them in September.   This included the 10 tonnes to Bangladesh.   This leaves around 71 tonnes left to go and we have passed October now.   If they sold a similar amount in October then we are down to just below 40 tonnes remaining for sale by the I.M.F.   If they continue this pace of selling they will only be left with less than 10 tonnes to sell in December and will complete their 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 from?   These buyers are not price sensitive, so will have to attempt to buy in the open market, where they cannot buy their own local production.   If more central banks than are 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 I.M.F.?

It would be easy to assume that central banks will not buy more once the I.M.F. completes their sales.   Central Banks have been the main buyers of this gold with three central banks taking 222 tonnes and unknown buyers taking the balance.   We have to ask, did the central banks take this gold because it was just there and presented in a way that they could acquire it without disturbing the gold price?   Or 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 the eastern emerging nations.   Primarily they were nations stemming from or part of the Indian sub-continent.   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 that the power that the U.S. dollar now holds will move eastwards to some extent.   With the stresses and strains this process will entail, it is likely that eastern currencies, to some extent will rise in importance, as the dollar declines.   It makes sound investment sense now to lower their dependence on the U.S. dollar and diversify into other currencies.   But which ones?   The future is so uncertain one cannot be sure of the value of any other 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 the I.M.F. 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 effect their buying in the open market will have on prices.   As we discussed above 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 so as 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.  

What will the effect on gold supplies be of a cessation of sales by the I.M.F.?

Julian D. W. Phillips

Gold/Silver Forecaster – Global Watch

GoldForecaster.com

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Gold Rises as Yield Differentials Send USD Lower

ONG Focus | Insights | Written by Oil N' Gold | Tue Nov 02 10 07:16 ET

Commodities traded with a firm tone in European sessions as USD plunged against major currencies, with Japanese yen and British pound being exceptions. Rate hikes by central banks in Australia and India, ahead of the FOMC meeting, have widened interest rate differentials between these countries' currencies and the dollar. Precious metals remained strong with gold approaching 1360 and silver staying at elevated level after spiking to a new 30-year high of 25.055 yesterday. WTI crude oil is expected to rise for a second consecutive day with fuel prices trading with a similar pattern.

The RBA hiked the cash rate, by +25 bps, to 4.75% for the first time after a 6-month pause. Policymakers believe inflation will rise over the next few years as moderation of general price levels over the past 2 years is 'now close to ending'. Rally in commodities has given a significant boost to incomes and to investment in the resources sector while the tight job market will probably put upward pressure on wage over coming years.

Meanwhile, the RBI (the Reserve Bank of India) raised the repo and reverse-repo rates by +25bps each to 6.25% and 5.25%, respectively, in order to curb inflation which has been growing at the second fastest pace, after Argentina, in G-20. Policymakers signaled that further tightening in the 'immediate future is relatively low'.

Unexpected rate hikes have widened yield spreads between assets of Australia and India and those in the US, spurring capital flows to the former from the latter. While the dollar has weakened against major currencies today, Japanese yen and British pound were exceptions. JPY fell against USD after surging to a new 15-year high. The market trimmed long-JPY bets amid speculations the BOJ will accelerate easing measures after gauging Fed's action tomorrow. GBP tumbled against USD as PMI construction index surprisingly fell to 51.6 in October from 53.8 a month ago. The BOE will not change its policy stance at Thursday's meeting, though.

The strike in France has come to an end. Yet, it will take a few weeks to bring operations back to normal as labor actions last month have halted operations of 10 refineries. Surveys showed that the country's inventories of gasoil, fuel that includes heating oil and diesel, fell below 53 mmb at the end of October, compared with 5year average of 61.6 mmb. Therefore, the event may continue to support oil prices in the near-term.

 

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QE2 Means A Lower Dollar and Higher <b>Gold Price</b> - Robert Lenzner <b>...</b>

Oct. 12 2010 - 6:18 pm | 1,525 views | 0 recommendations |

Ben Bernanke has no sure fire policy solution for economic stagnation. QE2,  the $1 trillion quantitative easing expected, hoped for, prayed for, gossiped about, will only pour money into an economy that has no use for it. There is already $1.8 trillion cash on corporate balance sheets, $2 trillion cash in money market mutual funds and over $1 trillion reserves in commercial banks– a total of $4.8 trillion unused cash sitting silent. Creating no jobs, no consumer purchases.

 The upshot  will only drive down the dollar and drive up the price of gold, silver, platinum and other commodities. Thank  David Rosenberg, the best informed, clearest thinker on Wall Street (Gluskin Sheff) for that strong sure view. Anyway, you missed the first 3% ride  in commodities as the market began discounting QE2. last week.

QE2 will have a boomerang effect on the middle class. It will raise the price of wheat, sugar, coffee, poultry, beef, pork,  raising their cost of living, reducing their disposable income. Just the opposite that Bernanke intends. Horrors!

 No surprise. Students of the Fed like the reputable daily commentator Rosenberg (formerly of Merrill Lynch) have been monitoring how the  Fed chairman  has been dreadfully wrong in his prescriptions for the economy  since 2007. (see below step-by-step mistakes in policy).  Therefore, the odds are good the Fed will not be able to  find the formula out of stagnation and lower stock prices.

    This is a market completely based on a wing and a prayer;  wishful thinking that another $1 trillion or so in Quantitative Easing after Nov. 3 will make common stocks go up, create jobs, and ignite economic growth.

       You can ride stocks until the election and then sell them short, George Soros, the wiliest trader in the business, is advising privately. Sell them short, because  it is unlikely the Fed’s QE2 implementation will do anything  more than reduce the cost of borrowing money to buy a house or a car.

   Rosenberg backs Soros, calling the current rally “a complete money illusion–the Dow, S&P 500 and Nasdaq are all being priced in ever-devalued US dollars.”

 You want to rate Bernanke?

 Here goes;

 In  April, 2007  he predicted that the subprime disaster would not spread  throughout the housing market. He was devlishly wrong.

August 7,2007; The Fed chairman was concerned about getting inflation to moderate.   He should have been concerned about deflation, deleveraging and deficits . Got the downside risk to the US dead wrong.

In 2009 Bernanke predicted a sustained growth rate of 3.5-4.8% real GDP growth for 2011, and unemployment of 7.7-8.5%.

No wonder there are regional Fed chieftans who are doubtng the wisdom of QE2.  Driving down the yield on 10 year treasuries to 2% from 2.40% ain’t got no magic elixir.

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<b>Gold Prices</b> End Lower; $1400 Still Eyed

NEW YORK (TheStreet) -- Gold prices fizzled out Friday with trading influenced by a stronger dollar and profit-taking.

Gold for December delivery lost $5.60 to $1,372 an ounce at the Comex division of the New York Mercantile Exchange. The metal traded as high as $1,386.40 and as low as $1,362.70 during Friday's session, but the price was falling double digits after the Comex closed.

The U.S. dollar index was adding 0.65% to $77.04 while the euro was falling 0.88% to $1.39 vs. the dollar. The spot gold price Friday was falling $14.90, according to Kitco's gold index.

Gold prices were retreating despite the fact that Federal Reserve Chairman Ben Bernanke in a speech Friday gave the green light for more monetary easing. Bernanke said inflation "can be too low" and that "overall economic growth is less vigorous than we would like," but investors didn't learn anything new and no dollar amount was put on any accommodative measures.

Further supporting Bernanke's argument was the fact that the core Consumer Price Index for September was unchanged. Bernanke said that the Fed's next steps will be dictated by economic data and that a lack of inflation in September will certainly support the thesis that more money printing is needed.

Bernanke did say that the Fed will proceed with caution, leaving some question marks about how much money the Fed will inject into the system. Bernanke also said the economy should grow more quickly in 2011, which in turn raised the question of how long the Fed's monetary easing will last. Bernanke said that the Fed is already outlining an exit strategy to put a cap on quantitative easing and to make sure that inflation doesn't surge out of control.

His cautionary tone crimped gold's rally along with profit-taking as investors booked gains after gold's monster rally this week and on the heels of options expiration.

However, most analysts predict that gold prices should head higher in the short term amid the backdrop of monetary easing. George Gero, senior vice president and financial consultant RBC Capital Markets Global Futures, said that "buyers appear from everywhere at the first sign of profit-taking as currency weaknesses are hedged to maintain purchasing power."

With gold prices still eyeing $1,400 an ounce, the question remains just how high can the metal go?

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