The International Monetary Fund announced today they have concluded their sale of 403.3 metric tonnes of gold, which was approved by the Executive Board in September 2009. From the press release,
These sales are a central element of the new income model for the IMF that was endorsed by the Executive Board in April 2008. They will also increase the Fund’s capacity to support low-income countries under a strategy endorsed by the Board in July 2009 (Press Releases No. 08/74 and No. 09/268). The gold sales were conducted under modalities to safeguard against disruption of the gold market. All gold sales were at market prices, including direct sales to official holders.
The market, including central banks, had no problem hoovering the 400 tonnes, which is about 1/3rd of the gold held by GLD, the Gold EFT holds. Gold is up almost 50 percent since the sale was announced in September 2009.
You know our theme for gold is “Straw BRICS to Gold BRICS,” where central banks are forced to diversify and reallocate a portion of their massive foreign exchange reserves to gold and not silver! The average official foreign exchange portfolio is allocated 90 percent to the dollar and euro, both, of which, have serious store of value issues.
The following table shows China’s reserves, and especially Brazil, are significantly under allocated to gold relative to their fellow “Gold” BRICs,” Russia and India. The table shows that for China and Brazil to match the Gold BRICs average allocation of 7.4 percent of reserves, they would have to buy a combined 3.5-4K tonnes, which is more than 3x the stock of gold held by the GLD trust.
This is the fundamental reason why gold is so bid, our friends. No doubt the price will remain volatile, but the journey north will continue until the U.S. raises interest rates, global capital flows reverse, and the U.S. current account deficit makes a sustainable improvement.