Tuesday, February 26, 2008

Gold Bugs Could Call IMF’s Bluff

– Posted in: Current Touts

Traders have a saying -- 'Opportunity moves to size' -- and we may get to see it play out in the form of a dramatic showdown in the gold market if the IMF receives a go-ahead from the U.S. to sell 400 tonnes of bullion from its inventory. The prospect surfaced yesterday when it was revealed that the Treasury Department apparently has been lobbying Congress to approve the sale, proposed last May by the IMF to cover a widening income shortfall. At a current price of around $939 an ounce, the auction would raise a little more than $12 billion. That may sound like a lot of money, but in comparison to, say, the quarterly losses that any number of large banks have reported recently, it would be barely enough to shore up the books of even one of them for more than a few months. But those 400 metric tons of gold would look microscopically small in comparison to pent-up demand for bullion from the very largest buyers, most particularly sovereign governments that hold sizable dollar reserves and who presumably are eager to hedge them against further erosion in value. Billions vs. Trillions As a practical matter, there has not been enough gold for sale to mitigate the kind of exposure we are talking about, since the foreign-currency reserves held by China, Japan and Europe alone total near $3 trillion. But even that number could prove to be small in comparison to the demand for gold from individual investors, most of whom are undoubtedly more nervous about the erosion of paper money's worth than the nations that print it. So with such huge potential demand, why on earth did investors dump gold yesterday, causing it to fall $16 in mere minutes when word of Treasury's support for an IMF