Hi Guys!
The threat of IMF gold sales was a constant drag on the spot market and that overhang of gold was perceived by many to be a bearish development that would drive the gold price much lower. By having India take down half of that block so quickly both myths are effectively debunked. My guess is the remaining allotment will disappear just as fast, and I have to believe the Chinese will not screw around and try to lowball the price, and thereby risk missing out. A senior Chinese official commented today that China could get the gold cheaper from domestic production but that is rather disingenuous since China is not an exporter of gold anyway ie. they are already buying all of the domestic production and still active as an importer.
Some analysts have suggested that this large gold sale represents a top for gold, and the reason the Chinese did not step up to buy is because they are too smart to risk overpaying for it. Nonsense! First off, people have been calling tops for gold since the $300 level was breached. They were wrong then, and they are wrong now. But more to the point, China has such a huge amount of their for-ex tied up in US dollar leverage that they should move to sieze any large block of gold they can get, no matter what they pay for it. If they overpay in the short term its a small cost considering the US dollar has lost about 20% of its value so far this year, which amounts to hundreds of billions of dollars worth of theoretical value destruction for the Chinese. A few hundred million to buy more gold in a block purchase is chump change. If the Chinese are talking that they are not aggressive to buy, that confirms for me that they ARE very interested and probably will buy up the last chunk.
Next up after that I think its only logical that nations start buying gold mines and large deposits.
cheers!
mike
