IMF prepares to sell 191 tonnes of gold

For those few who may have missed the news, but noted a sharp fall overnight in the gold price, the IMF made an after-hours announcement that it was planning to sell the remaining 191.3 tonnes of its 403.3 tonnes of gold on the market - shortly but in an orderly fashion over time so as not to disrupt the gold price.  Even so, the announcement led to a fairly sharp marking down of the gold price overnight in the U.S. and on Eastern markets - and this morning the drop continued in Europe pushing gold back down below the $1100 level, but perhaps very briefly.  It is too early to assess the longer term impact of the announcement.
But there's nothing new here.  It has long been known that the IMF gold would be available  - although following India's purchase of 200 tonnes of it late last year some gold investors had pinned their expectations on all the IMF gold being sold off-market to other Central Banks - which may indeed still happen.  The amount is relatively small - much larger amounts have been released onto the market by Central Banks over the past few years without interrupting gold's upwards path, so the knee-jerk reaction in driving the gold price down, although not surprising, is almost certainly an overreaction to the statement  - although in itself has only been a fall of less than 2% at the time of writing - hardly a collapse.
We are indebted to gold believer Jim Sinclair's website - www.jsmineset.com - for the publication of the following comment on the IMF gold sales announcement from Dan Norcini - a Texas-based commodities trader who writes under the name of Trader Dan.
"After the pit session trade had already closed for the day in New York, news came out that the IMF was planning on selling the remainder of 403.3 tons of gold, 191.3 to be exact, on the open market. Gold was immediately taken down hard in the thin trading conditions, dropping more than $14 on the day.

There are several things about this that should be noted. First is the timing - it comes on the heels of a resumption of the uptrend in gold with many technical indicators having moved into the buy mode. It also coincides with another brand new all time high in the price of Gold priced in Euro terms at the London PM Fix.

Those of us who have been around the gold market long enough know full well that the timing of this announcement is therefore no coincidence but was timed to attempt to derail the returning bullish sentiment in the yellow metal. Why announce the sale publicly which is guaranteed to receive a lower price for the metal than if the IMF had just quietly sold the metal into the market. This is reminiscent of then Prime Minister Gordon Brown's announcement that England intended to sell its hoard of gold. That guaranteed that Britain would receive the lowest price possible.

Secondly, China was one-upped by India's purchase of some 200 tons of gold late last year and got caught flat footed. The spin on this gold sale is that the IMF announcing that they would sell the gold into the open market means that Central Bank demand for gold is not as vibrant as the market was led to believe. That is an interesting tall tale. The simple truth is that Central Banks do not generally buy gold and announce their intentions to do so beforehand. Neither do they tend to buy when prices are moving higher as the momentum based hedge funds do. Time and time again we have seen that the CBs buy gold during episodes of price weakness. Once news hit the wire last year that India had bought 200 tons of gold, the price never looked back and shot straight to $1220+. Any Asian Central Bank that missed buying the gold as a result is certainly not going to panic and rush into the market to obtain it. They are waiting for lower prices where they will acquire the metal. To state therefore that Central Bank demand for gold must not be as robust as originally thought is quite shallow analysis.

My view is that this announcement means nothing in the longer term scheme but was rather a cheap trick to take the market lower. We have already seen this week how some noted elites were pooh-poohing gold and trash talking the metal all the while they were acquiring a position in it. Nothing ever changes in this gold market. It is still one of the least transparent markets on the planet and perhaps the most prone to official sector interference.

Do not be disturbed by the news. It is probably going to be a one or two day wonder and then that will be it. Gold will then go back to trading the currencies taking its cues from the action in the Dollar.

Incidentally, this sale is supposedly going to be phased in over an extended period of time. Rest assured, the IMF would love nothing better than to sell the whole 191 tons in one lump sum to another Asian Central Bank."
Now Trader Dan's take on Asian Central Bank interest may, or may not, come about, but even without any such announcement of a Central Bank taking more IMF gold one feels there remains enough investor interest in the yellow metal to shrug off the announcement and any subsequent sales on the open market - although as Jim Sinclair points out the IMF rules prohibit it from selling gold on the true open market and thus it would probably need to auction its gold in relatively small tranches.
Gold proponents will view the downturn in the gold price as yet another buying opportunity with gold set for movement to higher levels as the year progresses.  Even if this doesn't happen, the IMF's proposed sale certainly in itself does not suggest a strong impact on the metal's prospects.  The amounts involved are too small.

By Lawrence Williams, Mineweb.com

http://www.proactiveinvestors.co.uk/companies/news/13484/imf-prepares-to-sell-191-tonnes-of-gold-13484.html