China & IMF Gold Sales; The Real Story

June 23, 2009

China's recent veiled threats towards the establishment have been taken to heart. As China announced increased gold reserves from 600 to 1,054 tonnes it was an obvious warning. Initially I thought it was a direct threat against the ocean of Treasuries being issued, but I think I have a clearer answer now. China wants the IMF's gold!

For years the IMF has "threatened" to sell their gold. The final approval had to come from the US since they have veto power. It finally came this past week. For the gold they will receive an insignificant amount of money in today's terms of $13 billion in paper, sorry I mean bits, or computer digits or whatever you want to call them, which can literally be created in the blink of an eye. The 400 tons of gold being traded for this instant gratification would take a full two months of production from every gold mine in the world to produce. Producing gold is quite a lot more labor intensive and thus gold's worth is, or should be, much greater.

It became clear to me this morning that the threats by China were threats that they'd better push through the sale of the IMF's gold or else. Unless you've been living on the moon lately, and possibly even then, you've noticed the tantamount battle taking place in gold. It coincided with the Chinese announcing gold reserve increases twice and looking back it's clear to me the threat was either sell me the gold, or I will take gold up and over $1,000 which would have brought in the momentum traders furthering the rally.

The establishment hasn't wanted and on many days have restrained gold from moving towards it's fair value. But recently they were losing the battle, and I surmise, succumbed in part by approving the IMF sale. A high gold price is not what they want and they will do everything in their power to slow the inevitable rise. Please see the facts which are all public record that GATA has amassed over the years for much more detailed information.

Other than China "forcing" the IMF to sell them their gold, allowing China to dump some of their US dollars, what is really exciting to me about the sale is that it's not really hurting gold. Sure, it's down a bit and just below the 50 day moving average which could certainly knock it down some more, but really it's holding up well and ultimately, nothing but another of the hundreds of gifts, by way of lower prices, to those who take advantage.

Will this be like the infamous Brown bottom when Gordon Brown unwisely and with the obvious intent of knocking the gold price down, announced the sale of 395 tones of Britain's gold for the bargain basement average price of $275 in 1999.

Could we be looking back in the years ahead and seeing today as another bottom, perhaps this period will be known as Jiabao's Jack. Whatever the case gold is in demand and perhaps the last large available quantity has been jacked.

I may be right, or I may be wrong in my line of thinking. But it makes sense to me knowing how the Chinese operate, and knowing the structure of the world financial system is ultimately backed by gold, no matter what they tell you.

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Warren Bevan is a renowned trader who’s honed his craft over the years learning the styles and techniques of Jesse Livermore, William O’Neil and Dan Zanger and forming his own unique style. He focuses on making money and going hard when the right markets present themselves and during the rest of the time focuses on capital preservation.  He focuses on the leading fast moving stocks during the good times.  He is a proud Canadian, traveler, explorer, and consummate market geek who tells it as he sees it. Warren’s website is www.wizzentrading.com and his email address is warren@wizzentrading.com

Gold is the official state mineral of Alaska.