Recall, the IMF sold 200 tonnes to India at $1049 and another 12 tonnes to Mauritius and Sri Lanka back in December. It is now going to sell the remaining 191 tonnes in "phased-in" open market operations. For some reason the IMF thinks that selling the whole 191 tonnes at once would disrupt the market. I'm sure one phone call to China or Russia and they could move the whole load. The other possibility is that the IMF is actually seeking to be a "profit maximizer" and is looking to be a "scale" seller as the price moves higher. Some might view this as overt price-capping. Au contraire, I suspect that the IMF may have created a potential feeding frenzy, as there are plenty of countries, hedge funds and very wealthy individuals who I'm sure would like to buy a large amount of gold at one price without running up the price.
As Jim Sinclair has pointed out in the past: "The history of IMF sales in the 1970s is that they allowed huge buyers to enter the market at one price. That attracts the major buyers... Selling of gold like this occurs only in bull markets and has historically been useless to stop the price increase. In fact in the 1970s these sales pushed gold higher by facilitating demand from huge interests, and will do so even more so now." Article link: Sinclair on IMF Gold Sales
The more interesting aspect of this situation is that the IMF is the only known seller in the world of a multi-100 tonne "chunk" of gold. My view has been that the real price of gold would not be, obviously, the paper price on the Comex or the odd-lot price of physical trading in London, but the price at which a large seller would be willing to sell a large amount to a big buyer or buyers. We don't know who those buyers would be because it would behoove them to show their bid until they can define where a big block would be offered (this is basic illiquid asset trading technique). Well, based on the nature of this announcement by the IMF, i.e. phased-in "on market" sales, we still don't necessarily have a real market price at which a large chunk of gold would be offered. I can assure you, based on 9 years of trading illiquid securities at a large Wall St. bank, that the "large block" price is several hundred dollars above the current spot price.
Wednesday, February 17, 2010
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Going back to India, Mauritius and Sri Lanka's so called "gold sales". These three countries run and ran IMF gold depositories. The gold they supposedly bought had been paid in by these countries into the IMF "gold pool remaining in the same Indian, Sri Lankan and Mauritian vaults" when the IMF was formed as part of their contribution to the IMF's paid up capital. It used to be part of the on dit that the IMF had to go and check it was their on a regular basis oh halycion days when we were worried about frauds in India.
ReplyDeleteThis gold was stored in their vaults for the duration of the time it remained in the gold pool over some 50 or so years. Recently Sri Lanka, Mauritus and India took their deposit out of the IMF gold pool and exchanged their pooled gold for cash, US dollars. This was a book keeping entry change to their contribution to the paid up share of the IMF capital base. At no time did this gold leave the countries concerned, nor may I add could it ever have been sold to a third party. This was a bookkeeping transaction by the Central Banks.
Their only reason for doing this is that a collapse of the IMF gold pool would put their gold at risk from other international claims that is how commodity depositories work and how the gold leasing scam is legalised. This is the much bigger story than the "sale" story we read every day.
So if the the Indians 'sharp operators' in the gold market think the depository pool is in danger of collapse you can bet it's in trouble.
So whose going to buy the real gold? Well we could take bets on the LBMA 'selling it on behalf of the IMF'. Otherwise known as covering gold lease shorts or another book keeping action.
No open sales here just move along folks, China never heard of it.
Dave,
ReplyDeletewhen I saw this I was like "more sales" but it is the SAME sale they already discussed for crying out loud. Still, sell gold to raise cash to bail out Greece et all is pretty funny in the scheme of things.
Who runs the IMF anyway? Jay Cutler?
ReplyDeleteRodd,
ReplyDeleteLOL.
@Anonymous: Great explanation of that whole thing. Thanks for sharing that. I thought about doing a post explaining that situation but I think the scope of the material is beyond the understanding of those who don't follow the truth about the gold market.
ReplyDeleteIn fact, I've been wondering if this remaining 191 tonnes is real or not and if it's not, that's why they are going to mask it with "phased-in on-market" sales.
gyc, the IMF has been rolling out the "threat" of gold sales for as long as I've been in this sector, which is now over 8 years. It's hilarious.
ReplyDeleteIsn't amazing how they make the announcement right after the US markets close and the electronic gold trading market is at its most illiquid? They ALWAYS do that.
Rodd: Colt Brennan runs the IMF now
Rodd: at least with Cutler running the IMF the season would end in December.
ReplyDeleteWell this how they are going to bail out the LBMA in gold. Now the question is, how are they to bail out JPM in silver?
ReplyDeleteYou think 191 tons will cover LBMA's exposure? JPM is the custodian of SLV. I kind of assumed that JPM knows it can always draw upon that source of silver. You have any thoughts on that?
ReplyDeleteI assume that they will offer small amounts of physical delivery to stave off the real delivery demands. This will hold off the tiger untill the Chinese get fed up and push the price up to find out at what price someone is really ready to sell serious gold at.
ReplyDeleteAs far as SLV is concerned I assume that at it's maximium it has 50 million ounces but the real figure is more like 10-15 million and all the rest is paper. Any determined push will put it on the floor.
It's clear that they've already set up the Comex to deal with no deliverable inventory - they'll force-deliver GLD and SLV, even though for now they say both sides have to agree to using GLD/SLV in lieu of real metal. It lets the Comex avoid the even worse alternative of changing the rules and letting contracts settle in cash, which would essentially signal default.
ReplyDeleteInvestors are catching on the reality - the Comex silver "eligible" - which is the investor-safekept silver inventory that's not deliverable - is at or near a record low (approx 60mm oz.)
The problem that all the exchanges have is the jewellery trade. If you look at the statistics the "jewellers" having been buying more and more silver recently. Small in relation to the 'investment take downs' increases to be sure. As the crisis hits more and more 'jewellers' are going to go whining to the exchanges for their little biscuits. As the physical premium widens 'jewellery' deliveries are sure to pick up rapidly.
ReplyDelete