On September 18, 2009, the International Monetary Fund (IMF) announced a plan to sell 403.3 tons (12.97 million ounces) of its gold reserves. This announcement was reported far and wide by the mainstream media.
As I explained at the time, the IMF had been threatening to sell roughly this amount of gold at least as far back as 2003 under varying pretenses. Previously, each rumor that the IMF might be selling gold would send the price spiraling downward for at least a month or two. My interpretation was that the IMF was not really planning to sell gold for the stated purposes, but was really trying to assist the US government in suppressing the price of the metal.
When the mere rumor of a possible gold sale no longer accomplished the effect of driving down gold’s price for an extended time, it became necessary for the IMF to be perceived as actually taking action. That resulted in the announcement 28 months ago of an actual sale. However, I warned my readers that the IMF would not be dumping this gold on the market en masse and that little, if any of it would ever be made available to private buyers.
The IMF implied that it would drag out the sales over multiple years to avoid disrupting the market. Actually, the real reason to drag out the sales was to provide the maximum leverage at trying to suppress gold prices.
The IMF sold off its gold over the next 27 months, much faster than it originally implied. People were stunned with the announcement that India’s central bank had purchased almost half of the total at full market price, when averaged about $1,067 per ounce. Several other central banks purchased smaller amounts.
The IMF may have made small sales into the commodity markets, but demand for physical metal has been so strong that any such sales did not appear to suppress prices.
In contrast to the huge publicity given to the announcement of the IMF gold sale, the IMF quietly revealed on December 21 that it had completed the sale. The mainstream media coverage was almost non-existent. Reuters, for instance, reported the news in a story that included only five sentences!
To me, it is obvious why the IMF wanted to downplay the completion of its gold sales. If the purpose of the sales was to help suppress gold prices, and gold prices rose 40% since the sale was announced, it is pretty obvious that the IMF sale failed as a gold price manipulation tactic. As much as the threats to sell gold and the actual sale of gold were used to hold down gold prices during the past seven years, an announcement that the IMF had stopped selling gold could have the opposite effect of pushing up future prices. So, for the IMF and the US government, the best news was no news coverage.
Even though the IMF gold sales had an insignificant impact on the market as they occurred, I think the growing realization that the sales are finished will lead many people to expect higher prices in the future. This will be more of a psychological reaction of a perceived decline in gold supply rather than one prompted by actual changes in gold supplies.
By the way, it is curious that the IMF managed to persuade India to keep its gold purchases in unallocated storage instead of having to ship physical gold to India’s central bank vaults. At a time when several other central banks are withdrawing their gold reserves from unallocated storage to repatriate them into their direct custody or into vaults within their borders, this may not be a safe move for India. It is definitely possible that there could be multiple ownership claims against any precious metals stored in unallocated accounts. If India were to press to transfer the gold purchased from the IMF, that is an event that would definitely lead to higher gold prices.
Gold reached an all-time high annual close (ignoring inflation) on the New York COMEX on December 31 at $1,421.00. The year-end price of gold has now increased ten consecutive years, with the rate of the rise starting to increase. There are few reasons to expect any slowdown of the rise or any significant drop in the price in 2011, while there are many reasons to anticipate acceleration in the increases. I have previously projected that gold could reach $1,600 by the end of January. I also see a high probability that gold will exceed $2,000 before the end of 2011.
Right now, most bullion-priced physical gold coins and ingots are in ready supply except for the American Gold Buffalo. Premiums are still reasonable. Would-be buyers who have been waiting for a major retrenchment in price should consider waiting no longer.
Patrick A. Heller owns Liberty Coin Service in Lansing, Michigan and writes “Liberty’s Outlook,” a monthly newsletter covering rare coins and precious metals. Past issues can be found online at http://www.libertycoinservice.com/ Pat Heller is also the gold market commentator for Numismatic News. Past columns online at http://numismaster.com/ under “News & Articles”. His bimonthly columns on collectibles can also be read at http://www.lansingbusinessmonthly.com under “Articles” and “Department Columns.”His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.