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Gold Bugs Could Call IMF’s Bluff

By: Rick Ackerman, Rick's Picks

-- Posted Tuesday, 26 February 2008 | Digg This ArticleDigg It! | Source:

Rick’s Picks

Tuesday, February 26, 2008

“Phenomenally accurate forecasts” 

Traders have a saying -- that “opportunity moves to size” -- and we may get to see it play out as a dramatic showdown in the gold market if the IMF receives a go-ahead from the U.S. to sell 400 tonnes of bullion from its inventory.  The prospect surfaced yesterday when it was revealed that the Treasury Department apparently has been lobbying Congress to approve the sale, proposed last May by the IMF to cover a widening income shortfall.  At a current price of around $939 an ounce, the auction would raise a little more than $12 billion.

That may sound like a lot of money, but in comparison to, say, the quarterly losses that any number of large banks have reported recently, it would be barely enough to shore up the books of even one of them for more than a few months. But those 400 metric tons of gold would look microscopically small in comparison to pent-up demand for bullion from the very largest buyers, most particularly sovereign governments that hold sizable dollar reserves and who presumably are eager to hedge them against further erosion in value.

Billions vs. Trillions

As a practical matter, there has not been enough gold for sale to mitigate the kind of exposure we are talking about, since the foreign-currency reserves held by China, Japan and Europe alone total near $3 trillion. And even that number could prove to be small in comparison to the demand for gold from individual investors, most of whom are undoubtedly more nervous about the erosion of paper money’s worth than the nations that print it. So with such huge potential demand, why on earth did investors dump gold yesterday, causing it to fall $16 in mere minutes, when word of Treasury’s support for an IMF bullion sale hit the tape?  Considering the facts noted above, there can only be one answer: Because the investors are too stupid to do the math.

Which brings us to the prospect of opportunity moving to size.  Traders know that when an exceptionally big block of stock is offered for sale, it has a way of coaxing forth demand that might not otherwise have shown itself. That demand can come from hedgers and arbitrageurs, from long-term investors or short-term traders. In this case, it is likely to come from a buyer or buyers so big that they would only risk moving aggressively if there were a big enough offer to allow them to do so without roiling the markets.  And that is what we predict will happen the next time a size block of gold is offered by the IMF:  the piranhas will pick it clean so fast that the bankers, disdaining gold as they evidently do, are going to regret not having offered a thousand tonnes instead.  For gold bugs, that will be remembered as the day the hard-money advocates called the bankers’ bluff. 


Seats Going Fast

The 12 seats I’d allotted for the March 8-9 Hidden Pivot seminar are beginning to fill up.  If you’d like to attend this online event, click here  for further details and instructions on how to register. The class will be held on Saturday/Sunday from 9:00 a.m. to 12:30 p.m. Mountain Time.  If you want to learn how to forecast stocks and commodities as confidently and precisely as top pros, this is an opportunity you should not pass up.


Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2008, Rick Ackerman. All Rights Reserved. 

-- Posted Tuesday, 26 February 2008 | Digg This Article | Source:


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