Gold had a very interesting week with the announcement from the IMF that the remaining 190 tons of a total 400 tons was going to be sold into the open market instead of through direct sale to Central Banks. Last September they announced the sale which was going to fund projects among poorer nations. India bought 200 tons around USD 1,050 followed by smaller amounts by Sri Lanka and Mauritius. The fact that the remaining 190 tons did not attract a buyer despite constant rumors about Russian or Chinese interest has fueled a lot of speculation over the past few months.
The news about the sale initially led to a 2.5% sell off but the USD 1,100 level proved to be well supported and a bounce followed. Given the high degree of publicity surrounding this type of sale where both quantity and price would be public information probably kept some interested buyers away. China has already indicated that they want to diversify their reserves further and buying gold would be part of that process. A process that has seen them doubling their reserves in the past six years to more than 1,054 tons and recently they have been buying into the SPDR Gold ETF.
Selling the remaining gold in the open market can prove an easier task and Central Banks who has been watching from the sideline may now quietly get involved. The IMF has promised not to disrupt the market saying that sales would be done gradually
Despite the recent dollar strength on the back of sovereign debt problems in Europe, with widening budget deficits in Greece, Spain and Portugal hampering Europe's economic recovery, gold prices have held up. Measured in Euros it raced to a new all time high this week at EUR 828 and indicates a potential decoupling with gold and dollar being able to rise together.
Technically gold broke the downtrend from the December high reaching USD 1,127 before the IMF story took it back down to support at USD 1,098. The speculative long position on COMEX has been reduced back to September levels leaving the market in a more neutral situation. A break higher would target USD 1,162 while support below USD 1,098 can be found at USD 1,070 before USD 1,045.
