Why The IMF's Supposed Gold Sales Don't Mean Much

Except for some inconsequential rallies, the gold price didn't do much in Wednesday trading in either the Far East or in early trading in London. But, around 11:30 a.m. in London [6:30 a.m. in New York], gold had a smallish rally that ended with a vertical spike shortly before 1 p.m. London time. This, of course, got hammered flat... but I would guess that the price spike came close to hitting $1,130 spot. And from there, as they say, it was all downhill... with the IMF gold sale news dropping the price $10 at 4:30 p.m. in New York. The low of the day was at that point... $1,103.40 spot.

Silver's price action was similar... rising a bit in Far East trading... but never straying much more than a dime either side of $16.20 spot until 10:30 a.m. Eastern time. Then the price dropped over 30 cents for no reason that I could see... and an hour later was slowly working its way higher until the IMF gold news hit the wires. The high price for silver [around $16.30 spot] was shortly after 4:00 p.m. in Hong Kong... and moments before London opened. The low was on the IMF news at 4:30 p.m. in New York... $15.79 spot.

The US dollar had another out-of-the blue rally starting at 3:00 a.m. Eastern time [4:00 p.m. in Hong Kong]... and by the time the rally tapered off a bit, it was 11:30 a.m. in New York. The dollar was up around 82 basis points... which is a lot! There was virtually no sign of it in either the gold or silver price. Gold was down about $10 during this period and, for the second day in a row, silver was the metal that got it in the neck at the very end of the dollar move... losing more than 40 cents all told... of which 35 cents of that down move came between 10:30 a.m. and 11:30 a.m. The dollar rally had petered out entirely by 9:00 p.m. Eastern time last evening... which was already 10:00 a.m. in Hong Kong this morning. Top to bottom, the dollar was up over 104 basis points.

A double whammy of the IMF news, and a dollar move like that, would have crushed the gold price only a few years ago. Obviously that's not the case now... at least not at this particular moment.

The stocks enjoyed the Dow rally, but the precious metals stocks got sold off the moment that silver got hit around 10:30 a.m. in New York... to the minute! Coincidence? I doubt it.

Open interest changes for both Monday and Tuesday in gold showed an increase of 9,592 contracts... which isn't a lot considering how much the gold price rose, so I still figure that part of the increase in prices over those two days was short covering... especially on Monday. Volume was decent at 195,019 contracts for both days. Silver's open interest only rose 1,493 contracts. All of this will be in tomorrow's Commitment of Traders report.

There was almost no delivery activity reported by the CME yesterday... only 4 gold and 14 silver contracts are up for delivery on Friday. No changes in either ETF were reported. The U.S. Mint tacked on another 8,000 one-ounce gold eagle sales yesterday... and nothing was mentioned concerning silver eagles. But the Comex-approved warehouses reported that another 615,751 ounces of silver were withdrawn from their inventories yesterday.

A lot of stories today... so I hope you can wade through them all. The first is a Bloomberg piece. It appears that the "great vampire squid" has been foolin' with the Greek bond market... making things all nice so they could hide the extent of their deficits. The headline reads "Goldman Sachs, Greece Didn't Disclose Swap Contract"... and the link is here.

Congressman Ron Paul is asking about Greece as well. In commentary over at his website he poses the question... "Are U.S. Taxpayers Bailing Out Greece?". That's a good question... and I'm sure a Fed audit would provide the answer. It's only a handful of paragraphs... and the link is here.

California reader Joseph Weiler was kind enough to send me the following residential real estate-related story from yesterday's L.A. Times. It appears that "about 4 million U.S. homeowners are 90 days or more delinquent on their loans or in foreclosure proceedings. That's a lot, dear reader. The headline states "New wave of foreclosures by end of 2010 is feared". As I keep saying, I'll talk about the bottom of the U.S. residential real estate market in 2013... and the link to the story is here.

This next piece is from Bloomberg and courtesy of Australian reader Wesley Legrand. It's no secret that China has been dumping U.S. Treasuries... but now the pace has quickened. The headline reads "China Sells Treasuries as Obama Increases U.S. Debt". The link is here.

Hard on the heels of that story comes this moneynews.com piece with the headline "Bankers Warn Japan Could Be Next to Dump U.S. Debt". I thank reader Ken Metcalfe for sending the story along... and the link is here.

What would a day be like without a story from Ambrose Evans-Pritchard over at The Telegraph in London? Here's a piece that he filed late last night. It's definitely worth reading... as the headline states... "U.S. bank lending falls at fastest rate in history". Can you spell deflation??? The link is here.

While I'm on the subject of Ambrose Evans-Pritchard, I received an e-mail from California reader Dennis Meredith late yesterday. He was kind enough to send me a link to an recent interview that Ambrose did with David McAlvany over at mcalvany.com. Ambrose is one sharp cookie. It's a great interview and E-P gives great insight into the Euro and the European Union... and towards they end they get into a discussion of a return to a gold standard. This is definitely a must listen. The headline reads "Is the Euro Terminal?" and the link is here.

The headline to my commentary today is about the IMF gold sales announcement. As a 10-year veteran of the Gold Anti-Trust Action Committee, I'm more than aware of the bugaboo about IMF gold sales. But we've found that, for the most part, it's turned into a paper tiger now that we can actually see the whites of their eyes. GATA's secretary treasurer, Chris Powell, has a lot to say about it in this release that came out late last night. The title to the release is identical to the headline of today's commentary... "Why the IMF's supposed gold sales don't mean much". This is a must read story from one end to the other. There are a lot of links, so I hope you can find the time to work your way through all of it... and if not now... then later. The link is here.

I must admit that I'm really suspicious about the timing of these IMF gold 'sales'... if that's what they really are. Tuesday [at the close of trading] was the cut-off for Friday's Commitment of Traders report... and anything reported after that will have to wait until the following Friday's report. I believe that next Tuesday is options expiry for the March contract in both gold and silver. March is not a big delivery month for gold, but it certainly is for silver. The other thing that stinks to high heaven is the fact [that I mentioned yesterday] that both gold and silver had just broken through significant moving averages... the 50-day for gold... and the 200-day for silver. The HUI was looking pretty good too. Now this!

As you know, dear reader, the bullion banks are great at pulling these sorts of rabbits out of the hat... it's one of their favourites when there's a major change in direction in the precious metals market. I'm just wondering whether the bullion banks will use this opportunity to smash both metals one more time. The 200-day moving average in gold was never violated on this downside move... and a 'failure' of the above mentioned moving averages may just give them the opportunity to 'do the dirty' again. The 200-day moving average for gold is $1,025.

But unless we take out the previous lows that we had earlier this month, we won't see a lot of technical fund selling... so if this is the plan [and I'm only thinking out loud at the moment], we may have some more pain to endure before we're out of the woods to the downside.

I'd love to be wrong about all this, but after a decade of watching every twitch in the gold and silver market, I'm well aware that that possibility exists.

Both gold and silver were down a bit in Far East trading earlier this morning... as the dollar rally resumed. Gold is down about $8 and silver about 17 cents. London is now open as well... and a smallish rally in both metals has them almost back to almost unchanged from the Far East open. Volume in gold [at 5:13 a.m. Eastern time] is a pretty hefty 38,108 contracts... and in silver it's a largish 7,230 contacts... so the New York bullion banks [or their proxies] are hard at it already.

The preliminary volume numbers for Wednesday's trading have been posted at the CME website. They show that 187,846 gold contracts were traded yesterday, along with a rather substantial 60,833 silver contracts. The open interest numbers to go with these volume figures will make for fascinating reading when they're released later in the New York morning.

It should be an interesting day on the Comex. One thing is for sure, with the IMF news already more than 12 hours of old as of this writing, if the price doesn't decline [of its own free will] during New York trading, it will mean that the major players in the gold market have seen the IMF sales for what they probably are... all talk and no metal.

See you on Friday.