IMF Sale Announcement Spooks Gold Market Somewhat

The hopes that the rest of the IMF gold would be snapped up by another central bank are fading as the Fund announced that it will try to sell the 191.3 tons left in its 400-ton sale allocation on the open market. It will sell to any central bank too, provided that any such bank asks before the gold is sold:

"We are still open to off-market sales, so that window has not closed," IMF Finance Director Andrew Tweedie said, adding: "All that has happened now is that we are moving to also start on-market sales."

Tweedie said a key element of the on-market sales was that they would be carefully phased over time. "This is the practice that other central banks have followed successfully, and we plan to adopt a similar approach," he added.

The slump was tied to the fact that the last rally was based on central bank buying of gold (to be more precise, emerging-market central bank buying) and the new overhang of supply, phased in as it may be.

Gold slumped a little before the announcement, but dropped about nine dollars an ounce right afterwards, and nine more as of about 7 PM ET; it bottomed a little more than an hour later at about $1,097. Shortly afterwards, though, the price vaulted back up above $1,100 and drifted between that level and $1,105 until about 3 AM. Another, shorter dive ensued at that time which took the metal down to $1,096.20. Again, the drop was short-lived; by 3:30, gold was up above $1,100 again. The metal trended upwards for the next two hours, reaching above $1,105 before pausing at that level until about 7:20. Then, it spurted up again. As of 8:02 AM ET, spot gold was at $1,106.20 for a drop of 60 cents on the day. Surprisingly, given last evening's news, the Kitco Gold Index has gold down 70 cents due to U.S. dollar strength and up 10 cents due to predominant buying. Given the momentousness of the news, the near-unchangedness is unexpected. There may be one or more tests for air pockets in the regular session today.

The U.S. Dollar Index, compared to yesterday, was rather sedate last night. After regular trading ended, the Index drifted down slightly until the IMF news hit. Surprisingly or no, the greenback moved up on the news: from the 80.45 level to the 80.63 level in less than fifteen minutes. After 7:45 PM, though, the Index traded in a range bounded by 80.55 to 80.65 until night had turned into morning (ET.) After slumping between 1 and 2 AM, the Index turned upwards and made a double top at the 80.71 level. It pulled back again, reaching 80.47 as of 5:25 AM, and then churned between 80.5 and 80.6. As of 8:14, it was at 80.58.

A lot of today's reports have gold tied in with the greenback. This standalone article from Reuters has two quotes from experts, the second of which has held up well so far:

"[Last night's drop] wasn't totally unexpected given what the IMF has been saying, but it was still enough to give the market a rattle," a gold dealer in Sydney said....

"This is probably a knee-jerk reaction. At the end of the day, the sales from the IMF are well-known," said Jacob Oubina, senior currency strategist for forex.com.

A Marketwatch report, entitled "IMF announces gold sales, putting metal under pressure," has this reaction:

"While the IMF attempts to sell the gold in a phased manner over time, short-term gold supply is likely to rise and could, at least psychologically, weigh on the gold price," said analysts at Commerzbank AG in a note to clients.

After the opening of regular trading, that weight isn't evident so far. Despite the U.S. Dollar Index breaking slightly above its 80.55-80.65 range, before falling back, spot gold actually moved from a slight loss to a gain of $1.90 as of 8:58 AM ET. The 1.4% rise in wholesale prices was double the expected 0.7% figure; the core rate rose more than expected too. Another greater-than-expected figure was jobless claims, which were up by 31,000 when analysts expected a small drop. The release of both figures temporarily choked off an early-morning rally that got gold up to above $1,112. Dollar strength and gold weakness likely resulted from the second being seen as more significant than the first, or as the first signalling a rate hike sooner rather than later. So far, though, there hasn't been a serious test of the kind that's recently abated. If gold gets through the day without being hammered, then the technical position looks pretty good...

...unless the slam-down comes tomorrow.