Capital Gold Group Report: IMF Has Fully Sold 403.3 Tons of Gold

Why China failed to buy IMF gold reserves

Published on: December 22 2010 12:40 GMT

NEW YORK (Commodity Online): 2010 bullion headlines have been dominated by one major news items, often: the gold reserves sale by the International Monetary Fund (IMF). And 2010 is going to end with the news now that IMF has fully sold the 403.3 tons of gold.

Now that the gold sale by IMF is all over, it is interesting to look at who all got the gold reserves that were on sale by the global organization.

On Tuesday, IMF said that is has concluded the sale of 403.3 tons of gold, which was around 13 percent of its gold reserves to central banks and bullion market participants ever since the IMF executive board approved the gold sale in September 2009.

While more than half of the IMF gold sale was bought by the central banks of India, Sri Lanka Mauritius and Bangladesh, the most surprising aspect was the exclusion of China from the IMF gold sale party.

China, the largest producer of gold, had announced early this year that it would considerably step up gold reserves in the next decade to the tune of 10,000 tons. Currently, the Chinese gold reserves stand less than 1200 tons.

Even though there were rumors that the People’s Bank of China—the Chinese central bank—would bid for IMF gold reserves, nothing happened in 2010. “It is a big surprise as to why China did not buy the IMF gold reserves on sale. There has been no official communication to this effect. I feel high prices of gold forced China to skip participating in IMF gold sale,” David Lew, a bullion expert based in Beijing told Commodity Online.

He said China could have easily acquired as much gold reserves from IMF like India.

There were rumours earlier that China would bid for the IMF gold in the second phase of sale. But, according to analysts, China did not buy the gold as it was not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility.

Some analysts had earlier said China would purchase the IMF gold in an effort to diversify its dollar asset-dominated foreign exchange reserves. According to estimates, over 70 percent of China’s $2.4 trillion foreign exchange reserves are in dollar assets.

According to George Milling-Stanley, head of government affairs for the World Gold Council (WGC), people who believed China would be the buyer of the IMF gold hadn’t really thought it through.

“China has been buying local gold mine production and the production of local refineries – whether that is by-product gold or recycled gold – for a number of years,” said Stanley. “They have been gradually building gold reserves, not by cashing in dollar assets which might upset the dollar market but they have been quietly doing it by buying local gold production,” he said.

It was rumored that China and Russia were interested in purchasing the IMF gold, but it appeared that this would be at a discount. Statements from a Chinese commercial banker last year indicated that the China government was more interested in buying gold in yuan from domestic producers (majority are state-run) rather than buying gold in the open market with dollar reserves.

Now that China did not figure out on the IMF gold sale radar, which are the countries that got away with the IMF gold in 2010?

During October and November 2009, IMF sold a total of 212 tons in this manner to the Reserve Bank of India, the Bank of Mauritius, and the Central Bank of Sri Lanka. On September 7, 2010, the Fund sold 10 metric tons to the Bangladesh Bank.
IMF said on Nov. 29 it told 19.5 tonnes of gold in October, but it has not yet provided details of sales in November or December.

According to the modalities for the gold sales adopted by the Executive Board, the Fund initially stood ready to sell gold off-market directly to central banks and other official sector holders at market prices.

The strictly limited sales of Fund gold approved by the Executive Board is to help put the financing of the IMF on a sound long-term footing, and also help to boost the Fund’s capacity to provide concessional loans to low income countries.

An endowment funded with the profits from gold sales is a central component of the new income model that the Board endorsed in April 2008. The new income model would provide more diverse income sources that are better aligned with the variety of functions performed by the Fund.

Resources linked to the gold sales will also be used indirectly to increase the Fund’s capacity to provide concessional loans to low income countries.

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Capital Gold Group Report: Fed buys $2.07 billion in Treasurys; bonds stay down

By Deborah Levine

NEW YORK (MarketWatch) — The Federal Reserve Bank of New York bought $2.07 billion in Treasury debt on Wednesday, the last buyback operation for the holiday-shortened week. The purchases are part of the Fed’s second round of quantitative easing combined with a previous program to reinvest cash from its maturing mortgage-related holdings back into Treasurys. Dealers offered to sell the Fed $13.055 billion in debt maturing from 2021 to 2027. The Fed previously said it expected to buy $1.5 billion to $2.5 billion during the operation. After the announcement, the broader bond market stayed under pressure. Yields on 10-year notes, which move inversely to prices, rose 2 basis points to 3.33%.

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Capital Gold Group Report: MF Global Looks For Gold To Be In $1,250-$1,550 Range During 2011

21 December 2010, 9:29 a.m.
By Allen Sykora
Kitco News

(Kitco News) – MF Global looks for gold prices to be in a range of $1,250 to $1,550 an ounce in 2011, with a year-end objective of $1,450.

MF Global sees silver in a range of $25 to $35, with a year-end objective of $30, according to a precious-metals outlook issued Tuesday by analyst Tom Pawlicki. “Palladium should outperform platinum again, and finish near $1,000/oz as global auto demand firms,” he said.

Generally, Pawlicki looks for gold prices to advance in the first half of the year on many of the same factors that have been underpinning them. For starters, central banks have been marginal net buyers for several quarters now, with China and Russia among those likely to still be adding gold, MF Global says.

A second round of U.S. quantitative easing, dubbed QE2, continues until the end of the second quarter, which should help keep prices elevated, MF Global said.

“Fed Chairman (Ben) Bernanke has discussed the possibility of a QE3 program being implemented, so metals prices may remain buoyed until receiving more clarity on that issue,” Pawlicki wrote. “In Europe, excessive spending has led to the sovereign-debt problems that have caused the euro to fall and investment to migrate to safe havens.

Metals should continue to receive support from the uncertainty that remains regarding the health of the single currency and the possibility of default by one of its members.”
MF Global also cites Chinese investment into gold amid concerns over inflation in the country.

MF Global said there are no “eureka-moment” factors capable of de-railing the metals markets at the moment, but cautions that some might be developing, including excess bullishness the same way that excess bearishness existed when the market put in a bottom a decade ago.

“In the same way that the bottom in prices was formed in 2001 when players became too short, we need to be aware now that the opposite conditions are in place,” MF Global said. “In 2001, prices were rounding out a five-year selloff because central banks were selling, miners were hedging, and investors were fleeing. At the moment, central banks have just turned net buyers, miners unwound almost all of their hedges, and investors are flocking to the metals markets for lack of a better alternative.”

Meanwhile, quantitative easing could end up a “double-edged sword” for gold, MF Global said. Hopes for QE3 among some may be supportive. However, there also may be limited political support for such a measure. “The Tea Party may have an influence here, with Ron Paul heading the Banking Committee,” MF Global said. And while hawkish and frequently dissenting Fed member Thomas Hoenig won’t be a voting member in 2011, Richard Fisher and Charles Plosser will be, and they have been vocal opponents of QE as well, MF Global pointed out.

Still other factors that could eventually limit the upside for precious metals would be upward movement in interest rates and potential interaction with other markets, such as any strength in the dollar.

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Capital Gold Group Report: Gold Prices Up as Investors Seek Safety against Escalating Tensions between North and South Korea

Alix Steel
12/20/10 – 09:42 AM EST

NEW YORK (TheStreet) — Gold prices were climbing higher Monday as the metal shined as a safe-haven asset.

Gold for February delivery was adding $6.30 to $1,385.50 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,388.90 and as low as $1,377.

The U.S. dollar index was up 0.02% to $80.38 while the euro slid 0.30% to $1.31 vs. the dollar. The spot gold price was rising more than $9, according to Kitco’s gold index.

Gold prices were shrugging off a stronger U.S. dollar as investors bought gold as protection against escalating tensions between North and South Korea.

South Korea went ahead with military exercises off the coast of Yeonpyeong, despite the fact that North Korea threatened retaliation, echoing its attack on the island in November which killed four people. South Korea had asked civilians to seek shelter as a precaution.

Investors were buying gold as protection against any potential conflict as a safe place to preserve their wealth. Gold was also benefiting from uncertainty in Europe. Although European Union leaders agreed to a permanent crisis-lending facility starting in 2013, there was no immediate aggressive action announced out of the EU summit last week.

Worries are escalating the Spain might be on the chopping block. The government might be in OK shape but the soaring debt of its banks and citizens might overwhelm the government and the debt market. The aggressive downgrade of Ireland by Moody’s Friday didn’t help matters as the ratings agency warned that Spain’s credit rating was also on review.

Moody’s spread even more Christmas cheer on Monday downgrading five Irish banks — Allied Irish Banks(AIB), Bank of Ireland, EBS Building Society, Irish Life & Permanent and Irish Nationwide Building Society — because of their reliance on government funding.

“Further pockets of profit-taking … are likely in the run-up to year-end but as has been seen this morning the mix of economic and geo-political woes will continue to underpin the complex,” says James Moore, research analyst at fastmarkets.com.

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Capital Gold Group Report: Tax Measure Gives Deal to Wealthy Roth IRA Converters

BLOOMBERG NEWS
By Alexis Leondis – // <![CDATA[
// Dec 17, 2010 7:56 AM PT

The extension of current income-tax rates gives wealthy taxpayers the equivalent of an interest-free loan if they convert a regular Individual Retirement Account to a Roth by Dec. 31.

Investors in traditional IRAs pay taxes up front on conversions to Roth IRAs to get tax-free withdrawals later. Earners in the highest tax brackets who expected rates to rise next year were faced with reporting all the additional income from conversions on their 2010 returns. With the tax legislation, wealthy savers can now defer and use those tax dollars to earn something, according to Christine Fahlund, a senior financial planner at Baltimore-based T. Rowe Price Group Inc.

“It’s the deal of the century,” said Ed Slott, a certified public accountant in Rockville Centre, New York, and founder of website irahelp.com. “It’s like Congress is giving you an interest-free loan to build a tax-free savings account.”

This year taxpayers can choose to report the taxable income from the conversion in 2010, or split it equally between 2011 and 2012. Federal income-tax rates were set to rise in 2011 to as high as 39.6 percent, up from 35 percent, when tax cuts instituted by President George W. Bush were to expire.

The Senate passed an $858 billion tax-cut plan Dec. 15 that would keep existing income tax rates for all earners through 2012. The House voted 277-148 for final passage even though many House Democrats wanted to limit the tax cut extension to the first $250,000 of family income. President Barack Obama is scheduled to sign the measure into law this afternoon.

Tax Brackets

That means a taxpayer in the top income bracket with an IRA worth $1.2 million would likely pay 35 percent or $420,000 in federal taxes when converting the entire account to a Roth IRA this year, according to Fahlund. They would have paid $475,200 if income tax rates had increased in 2011 to 39.6 percent, or $55,200 more in taxes.

Conversions work best for savers who know they’re going to be in as high or higher tax brackets in the future, and can pay the taxes with money from outside the IRA, said James Lange, a Pittsburgh-based certified public accountant and author of “The Roth Revolution: Pay Taxes Once and Never Again.”

Deferring the income from conversions made this year makes sense for most taxpayers who will be in the same or lower tax brackets in 2011 and 2012, said Slott, the accountant.

New York Payers

For New York taxpayers, there’s a potential additional benefit of deferring, said Mitch Drossman, national director of wealth planning strategies for New York-based U.S. Trust, which manages almost $300 billion in client assets. New York state income-tax rates rose to as high as 8.97 percent from 6.85 percent in 2009 and are scheduled to fall back to 6.85 percent in 2012. That means savers can defer the income to a time when they may have lower tax rates, Drossman said.

The Internal Revenue Service lifted income restrictions this year on converting to Roth IRAs from traditional IRAs, meaning taxpayers making more than $100,000 a year in adjusted income can make the change. There’s no cap on the amount that can be converted to a Roth IRA from a traditional IRA.

It’s too early to know whether taxpayers are electing to report the income on 2010 conversions on their 2010 returns or wait until 2011 and 2012. They have until April 15, 2011 plus any extensions to decide, said Fahlund of T. Rowe. The firm saw more than a fourfold increase in the number of investors converting in 2010 through November compared with a year earlier, she said.

Conversions Increase

Vanguard Group Inc. based in Valley Forge, Pennsylvania, has seen a fivefold increase in the number of Roth IRA conversions this year to about 150,000 as of the end of November compared with 2009, said Maria Bruno, who specializes in retirement and retirement income for the largest U.S. mutual- fund manager. USAA in San Antonio has seen a fourfold increase in members converting some or all of their traditional IRA assets to a Roth IRA through October, said Kevin O’Fee, assistant vice president of USAA Retirement Strategies.

The taxes owed on switching to a Roth IRA from a regular IRA depend on whether the assets being transferred are pre- or post-tax dollars. If tax-free dollars are included, converters will pay income-tax rates on a percentage of the conversion amount, said Slott, the accountant.

Savers who expect to be in a lower tax bracket in 2010 than in 2011 or 2012 shouldn’t defer the income from the conversion, said David M. First, a tax partner at accounting and advisory firm Marcum LLP in New York. And those who are going to be affected by the alternative minimum tax in 2010 and not in 2011 and 2012 may also want to report the income in 2010, First said.

Partial Transfers

Since the default option set by the IRS for those who switch is splitting the income between 2011 and 2012, wealthy taxpayers opting to defer don’t have to do anything, according to John Bledsoe, founder of John Bledsoe Associates, an estate and tax planning firm in Dallas, Texas, whose clients have an average net worth of at least $10 million.

“For most people, advising them not to convert now is like telling them to not wear a seat belt while driving,” Bledsoe said. “There’s no logic for not doing it.”

When converting to a Roth IRA, savers should try to avoid converting so much in one year that it bumps them into a higher tax bracket, said Fahlund of T. Rowe. One option is to do partial conversions so the income is smaller, she said.

Investors who later change their minds about a Roth IRA have until October 2011 to undo the switch. Savers may also want to set up more than one Roth IRA to invest separately in stocks and bonds so they can undo a particular portion of the conversion if an asset class performs poorly, said Drossman of U.S. Trust.

Charitable Giving

For savers age 70 and a half and over, the tax bill includes a provision that allows them to give up to $100,000 from a traditional IRA directly to charity without incurring taxes.

In 2010, donors had to include the distribution as income and received a charitable income-tax deduction for their gifts. The bill would restore the exclusion from income retroactive to the beginning of 2010 and extend it to 2011 as well, said Kim Wright-Violich, president of San Francisco-based Schwab Charitable.

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Capital Gold Group Report: Rick Santelli, CNBC: Clarity from Fed? No. Inflation? Yes.

Rick Santelli, On-Air Editor, CNBC Business News Network
Published: Tuesday, 14 Dec 2010 | 4:40 PM ET

Today, the Federal Reserve’s statement was virtually identical to the statement of the last meeting on November 3. Yet since the last meeting treasury rates have exploded to the upside despite the Fed’s purchases known as “quantitative easing.”

The Fed’s direct action in the Treasury market has been nothing short of historic. The logic of the Fed’s various purchase programs was “sold” to the marketplace as a means to keep mortgage and treasury rates low…..or at least well-behaved and to create some “controlled” inflation.

Yet, since the last meeting 10-year rates are up close to 100 basis points! I am not sure what amazes me more — the fact that the Fed didn’t even MENTION the rate rise in today’s statement, or that many believe the various purchase plans have been “successful.”

How can a program that was designed to drive rates lower be deemed a success if rates are now sharply higher? Why is there so little clarity from an entity that is now among the largest holders of Treasury securities?

My conclusion is that the goal of Chairman Bernanke and the Federal Open Market Committee was to monetize the growing U.S. debt and generate future inflation. On the last score….generating inflation….I think time will prove the Fed highly successful.

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Capital Gold Group Report: Fed Holds Rate Target, Bond-Buy Plan Steady

Dec. 14, 2010, 2:15 p.m. EST

WASHINGTON (MarketWatch) – The Federal Reserve Tuesday left its key interest rate and the size of its bond purchase program unchanged, as widely expected. The central bank’s rate-setting Open Market Committee maintained the target range for the federal funds rate at its all-time low range of 0 to 0.25%, where it has stood since December 2008. It kept its bond purchase program, nicknamed QE2, at $600 billion. In its statement, the Fed said that the economy recovery is continuing “though at a rate that has been insufficient to bring down unemployment.” Thomas Hoenig, the president of the Kansas City Fed, dissented again, warning that the large stimulus could cause inflation expectations to rise and choke off a recovery.

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Capital Gold Group Report: Gold Prices Rise, Tops $1,400, on U.S. Interest-Rate Outlook; Silver Gains

“PRICE WILL AVERAGE $1,550 NEXT YEAR” – UBS ANALYST

Bloomberg News
By Pham-Duy Nguyen – Dec 14, 2010 10:55 AM PT

Gold futures topped $1,400 an ounce on speculation that U.S. borrowing costs will remain low, boosting the appeal of the precious metal as a store of value. Silver also gained.

The Federal Reserve has kept its benchmark interest rate at zero percent to 0.25 percent for two years and may signal more debt purchases to help bolster the U.S. economy. Gold has gained 28 percent this year, reaching a record $1,432.50 on Dec. 7.

“The Fed will leave the door open to additional bond purchases, and Europe’s debt problem will rear its ugly head again,” said Matthew Zeman, a metal trader at LaSalle Futures Group in Chicago. “You’ll see people flocking to gold again.”

Gold futures for February delivery rose $6.30, or 0.4 percent, to settle at $1,404.30 at 1:46 p.m. on the Comex in New York. Earlier, the metal dropped as much as 0.4 percent.

The price will average $1,550 next year, up from a forecast of $1,400, Julien Garran, an analyst at UBS AG, said in a report yesterday. Platinum and palladium are among the bank’s top picks in 2011.

“We expect European debt concerns, continuing implications of quantitative easing and an ongoing safety drive to fuel investor demand,” Garran said. “Absolute faith in fiat currencies remains shaky. Gold is currently behaving as a currency rather than a commodity.”

Silver futures for March delivery rose 16.4 cents, or 0.6 percent, to $29.788 an ounce on the Comex. The price has gained 77 percent this year.

Palladium futures for March delivery advanced $15.75, or 2.1 percent, to $768.20 an ounce on the New York Mercantile Exchange. The metal has surged 88 percent this year.

Platinum futures for January delivery climbed $16.60, or 1 percent, to $1,713.90 an ounce. The commodity is up 17 percent in 2010.

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Capital Gold Group Report: Gold Futures Rebound After China Refrains From Increasing Interest Rates

By Pham-Duy Nguyen – // <![CDATA[
// Dec 13, 2010 8:51 AM PT

Gold rebounded from the biggest weekly loss in a month after China’s decision to refrain from raising borrowing costs boosted demand for the precious metal. Silver and palladium also climbed.

Last week, commodities dropped on bets that China would increase interest rates over the weekend, damping consumption of raw materials. Before today, gold rose 26 percent this year, reaching a record $1,432.50 an ounce on Dec. 7. Copper jumped to a record in London.

“The world was pricing in an interest-rate hike, and it didn’t happen, so the industrial metals are pulling gold higher,” said Frank McGhee, the head dealer at Integrated Brokerage Services in Chicago.

Gold futures for February delivery rose $9.80, or 0.7 percent, to $1,394.70 at 11:48 a.m. on the Comex in New York. Last week, the price dropped 1.5 percent.

The metal is headed for a 10th straight annual gain. The Federal Reserve has kept its benchmark interest rate at zero percent to 0.25 percent for two years to stimulate the economy.

India is the world’s biggest gold buyer, followed by China.

The metal will climb to $1,690 next year and peak in 2012, Goldman Sachs Group Inc. said today in a report.

“At current price levels, gold remains a compelling trade, but not a long-term investment,” Goldman said. “We expect that as U.S. real rates begin to rise in 2011, the cycle will turn, and gold prices will begin to move lower.”

Silver futures for March delivery rose 88 cents, or 3.1 percent, to $29.485 an ounce on the Comex. On Dec. 7, the metal reached $30.75, the highest since March 1980. Before today, the price gained 70 percent this year.

Palladium, Platinum

Palladium futures for March delivery gained $22.40, or 3.1 percent, to $755.10 an ounce on the New York Mercantile Exchange. Before today, the metal surged 79 percent this year.

Platinum futures for January delivery rose $23, or 1.4 percent, to $1,698.30 an ounce. Before today, the price climbed 14 percent in 2010.

On the London Metal Exchange, copper rose to an all-time high of $9,235.25 a metric ton. Aluminum, lead, nickel, tin and zinc also gained.

The Thomson Reuters/Jefferies CRB Index of 19 raw materials headed for the biggest gain since Dec. 1.

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Capital Gold Group Report: Rep. Ron Paul Says He Won’t Push for End to Fed ‘Up Front’

BLOOMBERG NEWS

By Kevin Costelloe – Dec 10, 2010 7:12 AM PT

Representative Ron Paul, a Texas Republican who next month will take control of the House subcommittee that oversees the Federal Reserve, said today that he will “not really, not right up front” push for an end to the U.S. central bank.

“But obviously that’s the implication,” Paul said in a Bloomberg Television interview on “In the Loop” with Betty Liu. Paul said he was talking about a “transition.”

Paul, author of the book “End the Fed,” said he will emphasize “oversight” of the central bank.

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