Gold Bubble & the IMF Sales
So there were no takers for the IMF's latest gold sales...?
SO DID YOU NOTICE? asks Tex Norton at Whiskey & Gunpowder. The IMF didn't get any bids for its latest offer to auction 191.3 tonnes of the remaining gold that it wants to sell.
Apparently the central banks of the world have shown a distinct lack of interest in the proposed bullion sale. So gold game-over, correct? Not exactly.
Recall that India bought 200 tonnes of gold from the International Monetary Fund late in 2009, along with Sri Lanka (10 tonnes) and Mauritius (two). The IMF gold sale is purportedly based on the IMF's desire to raise funds to help poor countries. I'll leave a discussion of that ill-conceived notion for discussion at another time. The fact remains that the gold is for sale and apparently no buyers are willing to step-up and be counted.
At least, not publicly counted. Wonder why?
There are probably as many excuses as there are potential buyers. Philip Klapwijk, executive chairman of GFMS, the London-based precious metals advisor, thinks the IMF's decision underlines a general lack of buying interest now that gold exceeds $1100 per troy ounce. After noting the publicity that India, in particular, received as a result of their purchase last year, it's quite possible that other potential buyers simply don't want to risk any adverse publicity.
China has been reported to be Buying Gold for quite some time, as well as encouraging its citizens to also accumulate gold. It appears that China's purchases thus far are from local mines within the country. One would think, therefore, that China would be a prime potential buyer for the IMF's gold...but not the publicity. Could it be that China doesn't want to rock the US Dollar? If China stepped up to the plate, the interpretation could be made that China had lost confidence in their US Treasury holdings.
It has been widely reported that Russia is also Buying Gold and, therefore, presents a likely IMF-sale buyer. Russia doesn't have the same US Dollar exposure as does China, so their reluctance to step-forward is not immediately obvious.
Still another potential deal-killer is the outright disclosures themselves. Prior IMF sales have included specifics including the name of the buyer, the quantity purchased and the price paid. Gold Prices can be volatile. Should the price decrease after such a purchase, the buyer could then be ridiculed for having over-paid.
Recall the ridicule still being heaped (and rightly so) on UK prime minister Gordon Brown who, while still Chancellor of the Exchequer, managed to sell half Britain's gold stash at the very bottom of the market? You have to admit it takes real talent to be that stupid.
For at least the last two decades, approximately 400 tonnes per year have been sold by European central banks in that way. But it important to acknowledge that European gold sales have recently diminished. If this trend continues, an additional 191.2 tonnes sold could be somewhat insignificant. The jury is still out.
Where does this put the investor considering a position in Gold Bullion. To answer that question, you need to go back to basics. The basic argument for owning gold is that it offers an inflation hedge. With world-wide fiat money in circulation being increased in volume at the whim of the respective issuing governments, anyone interested in preserving their accumulated wealth must take pro-active measures to protect their positions. One way has been to stash capital in assets that tend to maintain value regardless of debased currencies. Gold has met that need for thousands of years. It's unlikely that anything will occur to change that protection in the near future. Is this not still the basic protection we seek?
And I'm always pleased when what passes for main-stream beliefs pokes fun at my investment portfolio. That tells me I'm still on the correct path to prosperity. I accumulated gold all through the 1970s as protection from the falling dollar. Recall that Nixon killed the dollar on August 15, 1971 when he closed the gold window. Anyone paying attention could then predict the outcome. Gold rose.
As gold rose in price, more and more folks became aware. In early January, 1980, several of us were having lunch at a restaurant when our waitress asked about our line of work. When we mentioned investment advisory, she volunteered as how she'd just taken a 2nd mortgage on her home and bought gold. After she left our table, I said "Guys, it's time to sell!" I actually sold that afternoon – at $750 per ounce. That was $750 on the way up to the top at $850 before it crashed. Sold too soon, right? Wrong. Never be greedy. It was obvious by that time that the general public had become aware of gold and were now buying. In fact, it was a buying frenzy.
As Bernard Baruch was fond of saying, "When the shoe-shine boy starts touting stocks, it's time to sell." We're nowhere near that gold sell-point yet. Yes, you now see more and more commercials advertising Gold Investment. At the same time, you see more and more ads from folks who will buy your "junk" gold. There are even Tupper-ware-type parties where neighbors bring their "junk" gold to sell to a visiting buyer. Then the sellers brag how happy they are that they were able to get rid of their "junk" gold and get real cash they can now spend. No mention is ever made that the price they were paid was far below the prevailing spot price of the underlying gold. What a deal!
Is gold in a bubble? Possibly, but if so, it still has a long way to go before the top is reached. The top will make itself known if you simply watch the market actions. In the meantime, what else can you do, if not invest in gold, to help protect your accumulated wealth...?
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