Gold came under significant selling pressure on Thursday. Following perceptions of the G-20 being on track to actually have gotten some critical work done, global stock markets and commodity markets made progress of the optimistic kind. Gold however, had to mind its worry-barometer attributes and took a fast course towards the sub-$900 level as the global gloom appeared to lift somewhat more.
Anticipation of concrete measures and proposals being manifest in this afternoon's G-20 communique drove intra-day values to a low of $893 per ounce (for a $34 loss) even as the dollar lost a lot of ground (to just under 84.50 on the index) and oil rose by $4.10 (to $52.50!) per barrel. One such item of interest appears to be the doubling or even trebling of the IMF's quarter trillion-dollar war chest. How? Well, there are ways...
Reuters reports that: Discussion at a summit of G20 world leaders about selling International Monetary Fund gold to raise extra funds refers to sales over and above existing plans, a British minister said on Thursday. What's referred to here is in addition to what has been previously, Treasury minister Stephen Timms told reporters at the summit. A G-20 source said earlier there was a reference in the summit communique to IMF gold sales but the language had not been firmed up and it was unclear whether it would be separate from the 400 tonnes of gold the IMF committed to sell last year as part of a broader restructuring of its income. Timms said he also expected a significant announcement on IMF Special Drawing Rights.
A Russian news agency report said on Wednesday G-20 leaders might approve $373 billion worth of IMF SDRs for its member countries. The move could be similar to a central bank printing money to increase the amount of cash flowing through an economy. The communique will be seen to make announcements about ... SDRs, potentially quite a significant announcement, Timms said. I certainly expect it to be significant, more than doubling.
Britain wants an agreement from the Group of 20 nations to improve the way the International Monetary Fund uses its cash, including freeing up money for lending by selling gold reserves, International Development Secretary Douglas Alexander said. “Among the measures we hope we can affect is the commitment to provide more and better funds for the IMF and World Bank including by using profits from the sale of IMF gold reserves,” Alexander said at the Group of 20 nations summit in London today. “There have already been conversations with the South Africans and others in terms of whether the gold market can bear a phased and appropriate sale in a way that makes sense commercially.”
The IMF’s board approved a proposal in April 2008 to sell 403.3 tons of bullion as part of a plan to close the Washington- based lender’s annual deficit. The Obama administration soon will push Congress for legislation that allows the IMF to “mobilize” its stockpile of gold to boost its funds, U.S. Treasury Secretary Timothy Geithner said on March 11. A decision to sell gold requires the backing of 85 percent of the IMF’s executive board, and the board representative from the U.S. needs the approval of Congress to vote in favor of any sales, according to the organization’s Web site.
“I wouldn’t expect there to be an immediate decision out of today’s decision to sell gold tomorrow on behalf of the IMF,” Alexander said. “On the other hand, there is recognition from all parts of the international financial system that we are risking an unprecedented crisis which risks impoverishing many hundreds of millions more people around the world.”
It remains unclear as to why the tinfoil clubs which are once again (predictably) calling for backing up the truck and alleging sinister manipulation just when gold was doing well (it wasn't) are totally missing the overt essence of the words in this Reuters story. Pay very careful attention to the in addition to the 403 tonne part of the conversation here. That tonnage was meant to bridge the IMF's internal revenue/expense shortfalls. The 'additional/separate tonnage is meant to aid those who are lining up with hands outstretched on the IMF's doorsteps. Longest such lines the IMF has ever seen. What part, what word, what meaning, of any of the above is unclear?
The Nikkei index certainly gave its nod to the perception that the global systemic shock may be drawing to a close any day now; it rallied nearly 370 points. The Hang Seng index piled on a 1,000 point gain. The Dow Jones average had a good day as well, as good as it has had in a long while (some 250-300 points were added). Commodity currencies shone brightly.
Emerging market stock indices also experienced a spring in their step. Good thing that the London statement comes today; at least the pessimists won't be pointing to its release date with a knowing gesture. Not the same gesture that these gentlemen below are displaying, to be sure. It involves the use of another digit. Give the guys a break. In fact, they have each had only eleven minutes per capita to save the world. In that context, they are either super-human, or there is a staff of hundreds actually doing the grunt work behind the scenes.
We call it sour grapes. The fact that the much-rooted for Armageddon did not materialize, has a certain contingent of the hard asset financial media pundits very disappointed. Because, you know, we need to have closure that only a good old fashioned TEOTWAWKI can engender. Complete with a Nazi America, brown shirts, interment camps, and bartering gold for milk at the local 7-11 while waving your AK-47 high overhead. Oh, too bad. Go ahead and pout. It's your party, and you can cry if you want to. Someone whose brows are still furrowed but for different (deflationary) reasons is Mr. Prechter - he of Elliott Wave. The Prechterian vision still calls for sub $20 oil and a 3 to 4 K Dow. Let's not mention his (EW) gold targets. There are women and children in the room.
New York bullion prices struggled to maintain above the $900 mark late in Thursday's session, with 2.5% declines still showing across the price board. Gold was off by $24 at $903.50 per ounce at last check. Silver fell, but only by 10 cents to $12.93 an ounce - mainly on perceptions that whoever recovers, and whenever they do, they will want some of it to play a role in the economic comeback. Platinum rose by $20 to $1155 per ounce, largely based on similar expectations. Palladium climbed $2 to $221 per ounce, and rhodium was basically steady at just above the $1K mark.
The US dollar slid quite a bit today, but gold was obviously not in a mood to capitalize on such a decline. Safe-haven demand for the greenback and for gold appears to be following the opposite path of the demand for equities, battered industries, and various commodities that are seen as benefiting from a recovery in the global economy. No calendar dates attached, mind you, but there is a palpable sense of this spring being the bottom, or the first rung above it, as concerns the crisis. Hey, even the Confiker worm failed to show up and spoil the world's computing power yesterday.
We warned last summer about the emerging trend to regulate with a capital R in the wake of the crisis. It's a natural (over)reaction. Some kids get a whole new set of tough love rules imposed upon them after having misbehaved enough to place their family at risk. Some spec funds saw this coming and bolted from various positions well ahead of the period when the quest for liquidity was cited as the reason for the Big Sell that came in the fall. Now, news of financial globo-cops is starting to make its way into public consciousness. Madoff may have been the straw, but this was coming down the tracks with lights ablaze and horns blaring anyway. Little titles like 100 UBS clients under US tax authority scrutiny and Shutting down tax havens are seeping into the headlines. More to come. For now, here is a quick Marketwatch/Bill Watts snapshot of where this stands as the G-20 prepare to say Bon Voyage to each other:
Leaders of the Group of 20 nations are likely to agree Thursday to impose sanctions against countries that don't comply with a crackdown on bank secrecy rules, Stephen Timms, financial secretary to the British Treasury, told reporters at the G20 summit. Leaders are also likely to agree to publish a list of countries that don't comply. Ongoing discussions center around when that list would be published, he said. Germany and France have demanded that the G20 summit produce action against tax havens.
Leaders of the world's most powerful wealthy and emerging nations were working toward an agreement to at least double the International Monetary Fund's rescue capabilities and to sanction countries that fail to comply with a crackdown on bank secrecy rules, British officials said Thursday. Progress on those issues comes as disputes over the need for additional fiscal stimulus spending and measures to strengthen international oversight of the financial sector threatened to dominate the crisis summit of Group of 20 leaders.
Chancellor of the Exchequer Alistair Darling, Britain's finance minister, said there would be concrete action on the issue of tax havens by the end of the day.
The final G20 statement to be issued later Thursday is likely to include sanctions against countries that don't meet new, international standards on banking transparency, said Stephen Timms, a deputy to Darling.
The leaders would likely agree to publish a list of non-compliant countries, he said. Discussions now are centered on the timing of the publication of such a list. A tough crackdown on tax havens is a key demand of French President Nicolas Sarkozy and German Finance Minister Angela Merkel.
The first public victim of this new drive to root out anyone hiding money on faraway places was named today. An obscure accountant in Boca Raton, Fl. - and former UBS client, a certain Mr. Rubinstein. We are talking a few dollars north of $4 million here. Just pray that the man did not buy or sell any gold in the course of his dealings with UBS (U -give us money B efore uncle S am gets to any part of it).
Call us fools, but the dollar could lose some of the ground it has gained since last summer, at this juncture. And not because it is taking its last gasps before dying a horrible death. The problem is, so could gold, as regards the ground it has gained since late last year.
Happy Communique Reading.
Meanwhile, in Pyongyang: 10.....9.....8......7....