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At the end of October the I.M.F. had 32.7 tonnes of gold left to be sold. In September they sold 32 tonnes of gold and in October 19.5 tonnes,
in the open market. Should
they continue selling at the pace of September then we would expect to hear
the announcement in December and probably in the first half of December. If they continued the slower
pace of selling of October then we will have to wait until January 2011 for
the announcement. We
believe that this is significant because it will signal the real end of
“Official” selling of gold. The signatories of the Central
Bank Gold Agreement, with the exception of small deals in coins have not sold
for over a year now. With
the completion of the I.M.F. sales the annual 400 tonnes
of ‘official’ selling will not be available to the market.
We believe they
have stopped selling as we look back on their activity in the last year. We accept that they still have a
‘ceiling’ of 400 tonnes sales a year,
but this is now simply a gesture. Central banks
are solid buyers, primarily taking up their own local supplies first. We have to consider that more
and more gold producing countries may well buy their own local production
further reducing the supply of gold to the London
and other markets.
We should also
now accept that the main driving force behind the gold price rise is from
central banks, with other investment demand following.
Investment demand changes
At this point
we should again be careful to note that more and more investment demand not
only from Asia but in amongst the Western
institutions, is not with a profit in mind. Their investments are becoming
more and more because of the instabilities and uncertainties that surround
the developed currency world.
It is becoming more and more difficult to value assets internationally
with currencies swinging backwards and forwards as they are now. Gold is a better place to hold
wealth in these stormy days.
All from the
head of the World Bank down are also aware of the useful role that gold can
play in acting as a ‘value reference point’. Should this happen gold will
have returned to the world of money in real terms, albeit in a slightly different role to
the one it had in the past.
We termed this in earlier issues of the Gold Forecaster as gold no
longer being a ‘means of exchange’, but as a ‘measure of
value’.
What happens to demand with a 400 tonne drop
in supply?
A 400 tonne drop in supply in a balanced market will pressure
the demand side to find more gold.
· With
mine supply pretty inelastic there will be only a
small additional flow from that source.
· With
jewelry demand in the developed world back to former
levels, only much higher prices will deter them.
· With
industrial demand [particularly electronics] now a necessity, demand is
unlikely to be deterred by higher prices.
· With
demand in India
after an excellent monsoon and good harvests and GDP growth at 8.9% Indians
are keen to buy at these prices and will not be deterred except by sharply
higher prices.
· With
the Chinese middle classes expanding rapidly as that country continues to
develop, demand from there will continue to grow and most likely irrespective
of the rising gold price.
· Central
Bank demand is unlikely to abate no matter what the price, because their
interest is solely in acquiring tonnages of gold. We note that as part of their
ongoing program of gold buying Russia
also bought 18.66 tonnes in October [against the
I.M.F. sale of 19.5 tonnes]. Not only are they buying local
production but are present in the open market.
Consequently,
the only additional source of supply will have to be scrap supply or supply
from current holders. So we
ask, “At what price will current holders sell?
Scrap supplies the only source left, but at what price?
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Julian D. W. Phillips
Gold/Silver Forecaster – Global Watch
GoldForecaster.com
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