You’d have to say gold has been disappointing this last six months. September central bank selling didn’t help, but that still didn’t stop just about everyone from GFMS to GATA tipping something in the order of US$700-750 for the 2006 year-end. As it is US$650/oz has proved quite a hurdle.
But now that we’ve breached that figure (and holding around US$656/oz downunder time), the bulls are warming up again. One market participant putting a good case for a higher gold price is Blanchard & Co of New Orleans, “the largest and most respected retail dealer in rare coins and precious metals in the United States “. (www.blanchardonline.com)
Blanchard’s Neal R. Ryan echoes the sentiments of other technical observers in saying that now we’ve broken out of the US$640-650 range, US$680/oz should be a breeze. Then on to test last year’s highs after some more consolidation.
Tea leaves aside, the fundamentals for gold are looking strong as well. One new factor is the possibility of IMF sales (See “IMF May Sell 400 Tonnes Of Gold”, Commodities, 01/02/07) (That’s the first of February for our friends in the US ). But before deciding why IMF sales are actually bullish, let’s get cynical.
Ryan notes that with a hostile Congress, nothing is ever likely to be decided. And anything the IMF decides to do has to be approved by the US Congress. Even though it is the INTERNATIONAL Monetary Fund. Moreover, “Every time a budget gap needs to be filled, education programs need to be funded, health care initiatives need funding, etc., the IMF gold sale idea is trotted out”, says Ryan.
Ryan is quite indignant about this point, and fair enough too. “The IMF’s gold reserves should be viewed as an ultimate insurance policy against global fiscal crisis, not a piggy bank to be broken open repeatedly to help bridge funding gaps”, he jibes. It’s a “lazy” solution.
However, on the assumption the IMF does sell gold, consider these facts:
(a) The last time the IMF sold gold reserves was between 1976 and 1980. Gold hit its all-time high in 1981.
(b) The recent bottom for the gold price occurred in 2001, just after the Bank of England finished selling 400t, and the Reserve Bank of Australia offloaded significant amounts as well.
As noted yesterday, if the IMF does sell gold it will likely be straight to central banks, off-market. We won’t see it. And sales will be conducted over some years.
Back in the real world of actual gold mining, Ryan notes that Peru recently announced its gold production in November was down 24%. Yesterday Peru said it expected 2007 production to be down 13%. This means the first, third, fifth and sixth-top gold-producing countries in the world have recently flagged slumping production.
Now that must be bullish.