While the IMF gold sales are a positive sign, it won’t affect the gold market too heavily. What is positive for the gold market it that India bought the first half of the IMF offering. This points to the fact that foreign central banks will be net buyers of gold in 2009. They have been net sellers for over a decade.
If foreign central banks are buyers it shows that even the brightest financial minds are concerned about the dollar. This concern will continue to fuel the gold market, and buying of the precious metal worldwide. Gold sales are up this year and have been since 1999. In fact, China is encouraging their citizens to acquire precious metals, and stores are popping up all over the country to allow regular citizens to buy gold and silver.
The IMF still has roughly 200 tonnes for sale and there is much speculation as to which country will pick it up. But why will the sale of so much gold not have a major impact on prices worldwide? The answer is simple, about $28 billion worth of gold trades on the market everyday. India’s purchase of $6.7 billion was only about 23% of one day’s worth of trading. The fact is that this volume from the IMF is a drop in the bucket for the gold market.
The fact that foreign central banks are net buyers is very positive for the gold market. The recent purchase by India was very visible to the general public, and stirred up media coverage all over the world. So even though the purchase will not impact the gold market too significantly, the fact that the purchase happened is bringing gold to the fore front of peoples’ minds.
As more people buy gold coins around the world the price will rise, and will continue as long as demand out weighs supply. The price will rise until we see the third and final phase of this gold bull market where the price will experience a blow off top at which point it will correct and return to fundamental values. Until then enjoy!