Wednesday, August 19, 2009

Are the European Central Banks Done Dumping Their Gold?

From the Economic Times on 8/3: "Net official sector [European Central Bank system] gold sales in 2009 may drop to their lowest level since 1994, after sales in the first half of the year fell 73 percent from a year earlier, metals consultancy GFMS said in a report on Monday."

Regarding the latest Central Bank gold sales agreement, the GFMS issued this statement: "Gold sales under the new Central Bank Gold Agreement are unlikely to reach their full quota of 2,000 tonnes over the next five years, or 400 tonnes per year, the chairman of metals consultancy GFMS told Reuters on Friday."

Last week the ECB system reported zero weekly gold sales. In fact, over the last several weeks, ECB gold sales have been extraordinarily negligible. By the end of July, the ECB system had sold just 140 tons of gold under a contract that limits annual sales to 500 tons. That contract expires in September. This is by far lowest annual amount of gold sold by the ECB since I've been involved in the gold market over the last 8 years.

And the new gold agreement reduces the annual sales limit to 400 tons in order to accommodate IMF gold sales. China and India have indicated that not only would they like to buy the 403 tons the IMF wants to sell, but that they would like to buy all 3200 tons of IMF gold.

We know that Germany, Switzerland and a few other European countries have indicated that they are done selling gold. Austria issued a statement this week that it was done selling gold until 2014. Italy is working on a tax agreement that would enable them to raise revenues without selling any more gold to raise revenues. So which countries are left as sellers? Likely candidates are France and Spain and maybe some smaller ECB countries which need to raise some cash.

With world gold production declining every month now, and with global gold supply being quickly scooped up by several Asian and Arab Central Banks, where will the U.S. Government find more gold to keep its gold price suppression scheme alive? At the end of the day, the U.S. will no longer be able to use paper gold - Comex paper contracts and OTC gold derivatives (JPM is by far the biggest player in OTC gold paper) - to keep a lid on the price of gold. And gold-buying countries and investors are quickly learning how valuable physical custody (i.e. possession that is under your control) has become. The big hedge fund Greenlight Capital, which used to be the largest holder of the GLD ETF, recently dumped is GLD paper and replaced it with physical bullion in its own safekeeping. Apparently they read my report on the potential custody fraud going on at GLD.

Does anyone really believe the U.S. gold stockpile stills stands at 8100 reported tons, despite really changing since the last time the gold inventory was audited - back when Eisenhower was President? Evidently Barney Frank believes that number because he continues to sit on a Bill to audit the Fed which has enough House support to pass a floor vote and which has 75% support from the American people and which would allow us all to see just how much physical gold the U.S. really has.

The price of gold is going to go much higher in the near future. Make sure you have some.


  1. What do you think of this article?

  2. He's using the "max pain" theory of the put/call structure on stocks as we approach options expiry. In a market with low volatility I think there's some merit to it, but I don't believe the market makers can control the market with precision using puts and calls. I've actually dabbled with Goldman Sachs options using "max pain" calculations and have gotten blown out of the water LOL.

    Here's a call option picture that I believe is very bullish - this is the open calls on December Comex gold - the big "chunks" you see at 1000, 1200 and 1400 showed up in the last 9 months or so:

    In terms of what a "max pain" analysis might mean for the price of gold thru this Friday? I don't know. I've only casually paid attention to the put/call structure on GLD around op-ex in the past, but from what I've observed, the max pain analysis doesn't really work with GLD.

    If you think about it, let me know if you watch it unfold on Friday. My email address is