article 3 months old

Gold Sales Continue To Confuse

Commodities | Aug 25 2006

By Greg Peel

The Gold Anti-Trust Action Committee (GATA) is a non-profit organisation that believes for decades central banks, particularly those of the US and UK, have been selling large amounts of gold under the radar of IMF disclosure requirements. The large fall in the gold price in May is attributed by some to US Treasury selling in order to prop up the US dollar, a practise that has become quite prevalent, according to GATA, since the failure of hedge fund LTCM and the later tech wreck.

It is the nature of IMF accounting that some gold sales/borrowings from central banks are not fully disclosed and the system allows for misleading numbers.

Our friend Dennis Gartman quotes his friends at Barclays Capital in London saying recently that mystery surrounds the sale of 1.5t of gold at every London fix recently. This appears to be European central bank selling, and thus is no surprise as under the Washington agreement, as European banks yet have a reasonable amount of gold they can sell before the September 26 cut-off.

However, the sales are not showing up on the European Central bank reserves numbers. Says Barclays, “This does not make sense”.

It may be a statistical anomaly, Barclays suggests, but the analysts are looking into the situation further. The question is will these sales continue right up to the cut-off date and thus “continue to be a dull weight on the top of the market”?

GATA is probably smiling knowingly, but GATA’s accusations tend to polarise the market between those who believe and those who think it’s all a load of bunkum. The upshot of the GATA theory is that there is actually far less gold in the world than official figures suggest, given the amount that has been secretly sold over the last decade in order to prop up the benchmark US dollar. This means that one day the selling will stop, and the gold price will sail merrily through the US$1,000/oz mark at least.

For more detail I refer you FNArena’s story of August1: Did The US Treasury Manipulate The Gold Price Down?

Share on FacebookTweet about this on TwitterShare on LinkedIn

Click to view our Glossary of Financial Terms