GOLD PRICE NEWS - The gold price rose $10 to $1,106 as an unconfirmed report that China will purchase gold from the IMF boosted the price of gold. The gold price advance snapped a four-session losing streak that saw the price of gold fall from $1,119 to near $1,090 per ounce. After opening modestly lower this morning amid liquidation across the broader financial markets, the gold price quickly turned positive and subsequently broke through the $1,100 per ounce level this afternoon. At a price of $1,106, gold recovered roughly half of its decline for the week and is higher by $24 for February and by $11 for 2010.
A report this morning by Russian news agency Finmarket was posted on the Russian website Pravda stating that China had confirmed its intention to acquire the remaining 191.3 of the 400 metric tons of gold the International Monetary Fund (IMF) put up for sale last year. Despite lack of corroboration, traders and investors poured into investments tied to the gold price - including gold stocks, gold ETFs, and gold bullion. COMEX gold futures (April contract) finished the day higher by $11.30 at $1,108.50 per ounce. As of 5pm EST, however, China nor the IMF had issued any response to the report.
The rumors of China’s plan to purchase gold from the IMF are the latest in a series of headlines involving the IMF’s gold sales. After announcing the sales program last September, the IMF soon concluded transactions with the central banks of India, Mauritius, and Sri Lanka. Last week the IMF announced that it would “shortly” begin to sell the remaining 191.3 tonnes of gold - worth approximately $6.9 billion - through “on-market sales [that] will be conducted in a phased manner over time.” Although the statement assured that the sales would be transacted “in accordance with the priority of avoiding disruption of the gold market,” the gold price sank from $1,120 to below $1,100 per ounce before recovering some of the decline.
While the speculation has been that China was interested in purchasing the remaining gold from the IMF in part to diversify out of U.S. dollars, the World Gold Council issued a statement this past Monday that China was not a “realistic candidate” to purchase the IMF gold. The comments from the World Gold Council pressured the gold price further.
Some market observers and economists have contended that the IMF is selling the remaining gold to raise contingency funds for European nations - Greece in particular - struggling with sovereign debt and rising deficit concerns. Earlier this week former IMF chief economist and current Harvard University Professor Kenneth Rogoff predicted that the IMF - not the European Union - will be forced to bail out Greece. Rogoff also predicted that a “bunch of sovereign defaults” will occur within the next few years.
If Rogoff’s forecast materializes, it could mean that the IMF may raise bailout funds by selling more gold reserves. In addition, if today’s report on China is true, it will confirm recent evidence of central banks continuing last year’s trend of being net buyers of gold - versus being net sellers for many years. Such a change would provide a further impetus for private investors to accumulate gold, and likely benefit investments tied to the gold price.
