goldheaven.com

Why isn’t China Buying Gold from the International Monetary Fund…?

IN THE LAST FEW MONTHS, speculation in the gold market has been rife that China will be Buying Gold from the International Monetary Fund (IMF), writes Daniel Wilson in Beijing for Commodity Online.

But is China really buying IMF gold? Despite the hype about Chinese plans to amass gold reserves in place of the US Dollar, it seems the dragon country is not in the mood to Buy Gold from IMF.

This week, again, the IMF said that it sold 14.4 tonnes of gold in April, carrying out its program of planned bullion sales. The IMF has 403.3 tonnes of gold slated for sale as part of its bullion sales plan. Out of this, India – one of the largest gold consuming and importing nations in the world – bought 200 tonnes in November 2009. India’s gold buying from IMF sent Gold Prices to the dizzying height of $1,227 per ounce in early December last year.

Sri Lanka and Mauritius bought small quantities of gold – 12 tonnes – from the IMF in between. Two months ago, the IMF announced that it would sell the remaining 191.3 tonnes of gold in the open market. So, as part of the open market sale, IMF sold 5.6 tonnes of gold in February, 18.5 tonnes in March and 14.4 tonnes in April. So far, IMF has sold 38.5 tonnes of gold in the open market.

The IMF has now 152.8 tonnes of gold up for sale. The moot question is whether China, that has been eagerly looking at Buying Gold and stepping up the yellow metal reserves, would buy the remaining IMF gold that is to be sold in the open market.

And the surprising question is why China is not buying IMF gold.

Even as central banks of several countries are Buying Gold from the international organization, might the rising price of gold be one reason forcing China to go slow on its own gold buying programme? Or is China, in fact, Buying Gold from the open market and then would come out with a surprising announcement next year that its gold reserves stand at 2000 tonnes? (Currently, the Chinese gold reserves held as foreign exchange reserve is around 1054 tonnes.)

David Lew, a keen gold market follower and bullion analyst, says there are several reasons why China is not Buying Gold from the IMF, though there have been rumors that the Chinese central bank was planning to buy the entire 191.3 tonnes of gold from the IMF once its Indian, Sri Lankan and Mauritian sales were complete.

First and foremost , however, is the fact that gold markets worldwide would turn into an immediate playground of speculation and excessive volatility if China said it was Buying Gold from IMF. "Even rumors that China was buying IMF gold two months back turned the bullion market highly volatile," points out Lew.

China has a relatively small position as far as gold reserves are concerned. The Chinese central bank – the People’s Bank of China – holds only 1.2% of the country’s foreign currency reserves in bullion. The largest chunk of China’s reserves, around 70%, is held in US Dollars.

Secondly, Lew says the fact that China is not jumping into to buy IMF gold does not mean that the country is not interested in amassing gold reserves. "It looks China is Buying Gold these days from gold mines, rather than Gold Bullion. Clearly, China wants to balance its gold reserve position very carefully and meticulously," he pointed out.

Lew feels that another reason for China not buying the IMF gold is that in doing so, the Chinese currency Yuan would appreciate. "China does not want its currency to appreciate by Buying Gold from IMF," Lew added.

China has been nursing ambitions to step up its gold reserves in the last one year, driven by the declining value of US Dollar that the Chinese central bank holds as foreign exchange reserve. China also continues to aggressively promote gold investment. Jewellery shops continue to sprout across Chinese cities, towns and rural areas.

A recent report from the World Gold Council (WGC) said that private gold demand in India and China will continue to grow driven by jewellery demand, in spite of high local currency Gold Prices. In Q1 2010, India was the strongest performing market as total consumer demand surged 698% to touch 193.5 tonnes. In China, demand proved resilient; demand increased 11% in Q1 2010 to 105.2 tonnes.

Buying Gold for your own private reserves today? Make it simple, secure and cost-effective by using BullionVault…

Source:China Buying IMF Gold?

Gold buying by the Russian government just hit 135 tonnes for the last year…

SINCE 2009 central banks – as a group – have become net buyers of gold. More importantly they have stopped selling gold, writes Julian Phillips at Gold Forecaster.

We do not deem the International Monetary Fund (IMF) sales as central bank selling, even if it comes within the totals given under the 1999 Washington agreement – since renewed twice – that puts an agreed 400-tonne ceiling on European central-bank gold sales each year. The distinction is that the IMF sales are to raise funds for a specific purpose, whereas the central bank sellers wanted to diversify their foreign exchange reserves out of gold.

In addition, the central-bank sales formalized by the Central Bank Gold Agreement of 1999, 2004 and 2009 were made in support of the establishment of the Euro currency internationally. Financing the IMF’s balance-sheet is a different matter entirely.

It is a matter of record that both China and Russia are now large official-sector buyers of gold. We are of the belief that China is buying all its local Gold Mining production, and using agencies to buy more on the open market for six or more years now.

For almost the same length of time, Russia has been saying they were going to be buyers. Their stated aim is to have 10% of their reserves in gold. With the slow buying of gold until last year they must have thought the Gold Price would rise to make their gold reserves equal that. But in the last year they have put their money where their mouth is, and are buying on the open market too.

Last month’s purchase of 15.5 tonnes takes Russia’s total gold buying over the last year up to 135 tonnes. How are they buying?

It is evident that the policies of both Moscow and Beijing’s central banks are similar. Both are Buying Gold as it is available. This can be done by placing an order at maximum price of say $1170 and asking for offers. They don’t move the price unless they are convinced they will attract buyers and feel that the price won’t drop in the short-term. If the price falls it is because there is an amount for sale that is yet to be bought. As it falls past the limit given by the central bank, the dealer offers it to the bank, which has the capacity to buy very large amounts easily and quickly.

Dependent on the volume on offer, the central bank buys, but only at their offer price or below. This leads to a central bank such as Russia’s buying 3.5 tonnes one month and 15.5 tonnes the next month. The important factor is that they are persistent buyers at a particular price…taking all they can get at that level or below.

If this behavior continues, it underpins the Gold Price. Other parts of the market will have to pay up, or stay away. This leads us to believe that shortly the Gold Price will move up, as such a policy does create a shortage in other parts of the gold market, which has to be met.

With central banks now buyers, the significance of gold as a reserve asset has been heightened, considerably. Other investment buyers see this they realize that it is dramatic support for the Gold Price, far outweighing smaller factors in the market place.

Additionally such demand is long-term investment demand, which will underpin the market for as long as sovereign debt issues undermine the current monetary system. The shift in the economic balance of power will contribute far more than these worries to the monetary system and further enhance the investment attractions of gold.

Buying Gold for your own private reserves today? Quit paying retail mark-ups; go wholesale instead, starting with a free gram of gold at BullionVault…

Source:Russia's Gold Buying

Gold buying by the Russian government just hit 135 tonnes for the last year…

SINCE 2009 central banks – as a group – have become net buyers of gold. More importantly they have stopped selling gold, writes Julian Phillips at Gold Forecaster.

We do not deem the International Monetary Fund (IMF) sales as central bank selling, even if it comes within the totals given under the 1999 Washington agreement – since renewed twice – that puts an agreed 400-tonne ceiling on European central-bank gold sales each year. The distinction is that the IMF sales are to raise funds for a specific purpose, whereas the central bank sellers wanted to diversify their foreign exchange reserves out of gold.

In addition, the central-bank sales formalized by the Central Bank Gold Agreement of 1999, 2004 and 2009 were made in support of the establishment of the Euro currency internationally. Financing the IMF’s balance-sheet is a different matter entirely.

It is a matter of record that both China and Russia are now large official-sector buyers of gold. We are of the belief that China is buying all its local Gold Mining production, and using agencies to buy more on the open market for six or more years now.

For almost the same length of time, Russia has been saying they were going to be buyers. Their stated aim is to have 10% of their reserves in gold. With the slow buying of gold until last year they must have thought the Gold Price would rise to make their gold reserves equal that. But in the last year they have put their money where their mouth is, and are buying on the open market too.

Last month’s purchase of 15.5 tonnes takes Russia’s total gold buying over the last year up to 135 tonnes. How are they buying?

It is evident that the policies of both Moscow and Beijing’s central banks are similar. Both are Buying Gold as it is available. This can be done by placing an order at maximum price of say $1170 and asking for offers. They don’t move the price unless they are convinced they will attract buyers and feel that the price won’t drop in the short-term. If the price falls it is because there is an amount for sale that is yet to be bought. As it falls past the limit given by the central bank, the dealer offers it to the bank, which has the capacity to buy very large amounts easily and quickly.

Dependent on the volume on offer, the central bank buys, but only at their offer price or below. This leads to a central bank such as Russia’s buying 3.5 tonnes one month and 15.5 tonnes the next month. The important factor is that they are persistent buyers at a particular price…taking all they can get at that level or below.

If this behavior continues, it underpins the Gold Price. Other parts of the market will have to pay up, or stay away. This leads us to believe that shortly the Gold Price will move up, as such a policy does create a shortage in other parts of the gold market, which has to be met.

With central banks now buyers, the significance of gold as a reserve asset has been heightened, considerably. Other investment buyers see this they realize that it is dramatic support for the Gold Price, far outweighing smaller factors in the market place.

Additionally such demand is long-term investment demand, which will underpin the market for as long as sovereign debt issues undermine the current monetary system. The shift in the economic balance of power will contribute far more than these worries to the monetary system and further enhance the investment attractions of gold.

Buying Gold for your own private reserves today? Quit paying retail mark-ups; go wholesale instead, starting with a free gram of gold at BullionVault…

Source:Russia's Gold Buying

Not so far away, but led by very different policies and attitudes…

HERE’S A BIT of global-investing trivia that I’ll wager most folks would have a tough time answering, writes Martin Hutchinson at Money Morning.

One of the world’s finance ministers has attacked the International Monetary Fund (IMF) for encouraging governments to engage in excessive "stimulus" in 2009, thus giving themselves horrible deficit and debt problems in 2010.

Name the country that finance minister hails from.

I’ll even give you a hint: He’s not from Germany, which avoided "stimulus" but tends to be polite about the IMF and had a fairly nasty recession itself.

Give up? Okay, he’s from Poland.

Although it’s a surprising answer, don’t be too surprised. Poland is today the most capitalist country in Europe and has become one of the most capitalist economies in the world.

It’s clearly Europe’s best-kept secret.

The story of Poland’s emergence is both interesting and instructive. And during a period of growing angst and uncertainty here at home, Poland represents an interesting place to put some investment capital.

Until 2005, Poland had a history fairly typical of Eastern Europe. It was liberated from Communism in early 1990, had a burst of very efficient "shock therapy" privatization under Leszek Balcerowicz in the early 1990s, then spent the next 15 years alternating between reformist and leftist governments, with the electorate’s main motivation appearing to be to throw the last lot out.

Then came 2005…

Poland broke the miserable mold of spending half of its time under neo-Communist governments by producing two right-of-center parties: the nationalist Law and Justice party and the globalist free-market Civic Platform. Law and Justice won the 2005 election and the presidency, still held by Lech Kaczynski (whose brother Jaroslaw is party leader). Then, two years later, Civic Platform won the legislative election and leader Donald Tusk became prime minister.

Unlike the horrid Yushchenko/Tymoshenko feud in Ukraine, the parties have remained able to work together, and have provided the Polish electorate with two alternative governments, neither of them staffed with Communist re-treads. It helped that the current foreign minister, Radek Sikorski, was defense minister under the Law-and-Justice government of 2005-2007: As an Oxford graduate with several years as a resident fellow at the American Enterprise Institute, he’s somewhat uninvolved in domestic party disputes.

Poland now has become so westernized that it has primaries for the party’s choice for president. (Places like France don’t do this; the candidate is still chosen by party bosses.) Sikorski is running for president against his party rival Bronislaw Komorowski, the speaker of parliament. I had lunch with Sikorski a couple of times while he was at American Enterprise Institute for Public Policy Research (AEI); he is a very sound free marketer with a good sense of humor (who is married to the US journalist Anne Applebaum).

From the point of view of my bragging rights, I hope Sikorski wins, but from Poland’s point of view, I don’t think it matters much – the country seems to have itself very well organized already. After all, Jacek Rostowski, the finance minister who denounced the IMF for its profligate advice, was just named European finance minister of the year by The Banker magazine, and he stays for now no matter who wins the presidency (because the parliamentary elections are not until October 2011).

The result has been a free-market success story. Poland’s economy grew at roughly a 5% annual clip until 2008. That’s when – instead of tying its currency to the euro – Poland allowed the zloty to depreciate when the financial crisis hit. As a result, the country enjoyed 3% growth in 2009, and is slated to do at least as well in 2010 and 2011.

The budget deficit is currently 2.5% of gross domestic product (GDP), mainly because – at 18% of GDP – central government spending is extraordinarily low by European standards. The payments deficit is less than 3% of GDP, inflation is below 3% and short-term interest rates are at a sensible level at just above 4%. Industry was privatized properly and without corruption under the Balcerowicz Plan in the early 1990s and the central bank is independent and not infested with Bernankeism – Balcerowicz, who was its chairman in 2000-2007 after his periods as finance minister, took a German-style, hard-money approach to the currency.

What’s not to like? As Finance Minister Rostowski said in a Financial Times interview:

"All the new member states [of the EU from Eastern Europe] have proved to be much more resilient to the crisis than people previously thought."

That’s because, unlike Greece, most of these member states were run by grownups – Poland foremost among them.

As for the Polish stock market, the Warsaw Stock Exchange WIG Index peaked at 70,000 in 2007, then dropped to 20,000 at the bottom. It has since recovered to 40,000, which suggests there are more gains to be had.

Of course, it’s difficult for US investors to find anything in Poland to buy. There are no full American Depository Receipts (ADRs) from this region, so anything you buy would be on the "Pink Sheets", meaning its liquidity would be limited accordingly. However, many shares do trade actively on the Frankfurt stock exchange, as well as on other, local exchanges.

However, in November 2009, the Market Vectors Poland ETF was established on the New York Stock Exchange, which invests in the Market Vectors Poland index. It’s currently too small to be entirely solid at only $17 million, a tiny float, but it certainly looks worth investigating.

Want gold and Silver at rock-bottom prices with no fuss and no middleman? Go to BullionVault now..

Source:Name That Country…

Was US regulator the CFTC right this week to discuss position limits in Gold Futures and options…?

On THURSDAY this week, US regulator the Commodity Futures Trading Commission (CFTC) held a daylong hearing to discuss the possibility of enacting position limits in the gold, silver and copper markets, writes Lara Crigger at Hard Assets Investor.

That might sound a little strange, considering the general lack of evidence or even public outcry on the matter. Apart from Gold Futures manipulation theorists, such as the Gold Anti-Trust Action Committee (GATA) – which was represented by founder Bill Murphy at this week’s meeting – few have even publicly raised the question of curbs on speculation in the metals markets.

That hasn’t deterred the CFTC or Commissioner Bart Chilton, however. He recently called out a need for "professional-grade regulatory tools" in the base metals and Gold Futures markets. But CFTC-managed position limits would be a very bad idea, says precious metals expert Jeffrey Christian. Managing director and founder of the CPM Group, and a well-known authority on gold, silver and base metals, Christian has worked with the United Nations, World Bank, International Monetary Fund, as well as dozens of miners, industrial companies, investment banks and investors.

Here Jeffrey Christian speaks to Hard Assets Investor about position limits, bona fide hedgers, and why gold manipulation theorists shouldn’t be so quick to call for more regulation…
 
HAI: Even though Bart Chilton was quoted as saying we need "professional-grade regulatory tools" in the metals markets, there really hasn’t been much of an outcry in favor of position limits in the metals markets. What are your thoughts?

Jeffrey Christian: Well, the exchanges impose and manage them already; there are position limits in the metals markets now that the exchanges run. And the exchanges’ position limits, generally speaking, tend to be more stringent than the ones that the CFTC might impose, were it to try and take the reins.

I think the idea of the CFTC as a federal regulator removed from the market, living in Washington and managing position limits is a bad idea. I think the idea of position limits on noncommercial positions is a good idea, but it is a good idea that is best effected by the exchanges, which are, by definition, closer to the market.

But I’m hesitant to predict the probability of the outcome of something that depends on the attitudes of politicians and political appointees in Washington. I hope we never see CFTC-managed position limits either in energy or metals, because I think it’s a bad idea. I don’t know what the probability is. I know that government regulators regularly crush my hopes.

HAI: Do you think the Nymex and the Comex do a good enough job regulating the metals markets already, then?

Jeffrey Christian: You can always look at it in hindsight and say no, it could be better done. And frankly, I’ve seen a couple slip-ups in the 30 years I’ve been involved in the metals markets. But I think they do a fairly decent job. They could probably do better, but the CFTC could probably do a better job of working with the exchanges on these issues.

HAI: Would adding position limits in the metals markets reduce the liquidity available, and hurt the ability of producers using these futures to hedge their risk?

Jeffrey Christian: I think there’s a risk there, but it would depend on how the CFTC executes the position limits. If they were to put position limits on commercials – and the CFTC seems to have a skewed idea of what a "commercial" entity is trading in the market – then what you have is that you start skewing the futures price relative to the physical price. All of a sudden, you have asymmetrical markets. People will say that the Nymex and the Comex no longer reflect the price, and they start migrating to unregulated or under-regulated and less transparent markets.

So you have a couple of issues. First, you have "regulatory arbitrage," where people bail out of the markets because there’s regulation they don’t like. And the second thing is, if the regulations skew the liquidity in the futures market, you have people saying, "The futures price no longer reflects the underlying commodity market, so I’m not going to use it to hedge my positions anymore."
 
HAI: A lot of gold and silver manipulation theorists – the ones who believe precious metals markets are being manipulated by large banks – are calling for position limits in these markets, and they’re testifying at this hearing.

Jeffrey Christian: Well, the discussion is that bona fide hedgers would not have position limits against their bona fide hedges. And that’s good. But what GATA doesn’t seem to realize – and even some of the people on the CFTC can get confused – is that the major banks are bona fide hedgers, too.

Most producers and consumers don’t trade futures. They trade over the counter forward and dealer options with a bank, and the bank turns around and hedges its forward market position with the futures. So if you’re going to allow bona fide hedgers to hedge their positions on an unlimited basis, the position limits that would be imposed would do absolutely nothing to reduce the concentration of the major banks in the market. In fact, it would actually take other people – noncommercial speculative types – and prohibit them from having too large a position.

So if anything, the position limits that are being discussed – if they’re applied intelligently – would actually have the potential to increase the concentration of trades by the major banks, which is exactly what GATA wouldn’t want. So insofar as they say they want position limits, they’re basically saying they don’t understand the nature of the market. Only speculators, trading opposite of the bona fide hedgers, would be limited.

HAI: All right, a nonposition-limit-related question for you: What precious metals do you see performing the best over the next 12-24 months, and which do you see not doing so well?

Jeffrey Christian: I think all the precious metals will do well, at least by my modest standards. I’m most bullish on the minor gems like rhodium, rhenium and iridium. I’m slightly less bullish on palladium. I’m slightly less bullish than that on platinum, and I’m slightly less bullish than that on silver. Still, I think all of those metals stand to see rising prices over the next 12-24 months.

HAI: Why do you think the minor precious metals like rhodium are going to do so much better than the others?

Jeffrey Christian: I think all the platinum group metals – and silver, for that matter – are relatively tight on a fundamental basis. I think fabrication demand will stay strong for all the platinum group metals and silver, but when I look at the individual markets, I think the fabrication demand for palladium may be stronger than the fabrication demand for platinum. The same is true for rhodium.

Also, for rhodium, rhenium and iridium, not only do you have healthy fabrication demand, but you have some supply constraints. They’re much tighter, much less liquid markets, because they’re not exchange-traded, and they’re not commonly seen as investments. They tend to respond to tighter supply more dramatically.

HAI: So what about gold?

Jeffrey Christian: Gold may actually be reaching a cyclical peak right now, and it may have reached its cyclical peak back in December, when it touched $1227 per ounce. I think it has the potential to go a little higher over the next month or two. But if the economy continues to improve, gold actually may reach a cyclical peak in the first part of this year, and then it may trade sideways.

I don’t see it falling sharply, though, because there are a lot of long-term investors who will take any decrease in the price of gold as an opportunity to add to their positions. So I don’t think the Gold Price is necessarily falling. But it may not rise as rapidly as the white metals.
 
Why trade Gold Futures when you can Buy Gold and Silver outright, dealing at live prices 24/7 with direct access to the trading spread…? Learn more at BullionVault now…

Source:Position Limits in Gold Futures