Gold lower on lift in US dollar

Good Morning,

Thursday’s improvement in risk appetite brought gold values to near the bottom of their current $1,240-$1,265 range. However, the relatively small decline from near-record levels was partially countervailed by overnight gains in the yellow metal attributable to some bargain hunting and continuing perceptions that not all is well with the state of global economics.

PR outlets were quickly tasked with heavily disseminating the-thought-to-be-market-supportive news that Bangladesh agreed to take 321,510.00 ounces of bullion off the IMF’s hands, in a rebalancing move that places it from 77th to about 58th on the list of top 100 gold holders in the world. Its previous 3.5 tonne holding was neck-in-neck with Canada’s official gold stash.

As for the IMF, this small, direct-to-the-official-sector sale does not preclude continuing sales of its leftover gold via market channels, in a similar manner in which it has already disposed of about 88 tonnes of its original 403 must-sell tonnage. At previous burn rates, such disposals could be completed by late 2010/early 2011.

It is but a process; an ever-changing one that involves – as has often been posited here – no more than individual allocation policies and decisions made on what is adequate in terms of holding in gold. The only consistency in central bank gold policies appears to be one of inconsistency. In reality, there's neither an “ideal” gold holding level, nor any predictable uniformity in allocation policy among various central banks.

Why does Portugal have 83.8% of its reserves in gold? Maybe it’s Columbus’ legacy. Why does China feel that 1.5%-2% is sufficient to keep in gold? Maybe Confucius rubbed off on someone: “The scholar does not consider gold and jade to be precious treasures, but loyalty and good faith.” Answers as good as any. Why does the US value its 8,100+ tonnes at $42.20 an ounce? Why does Canada feel safe with practically no gold in its basement? Questions as good as any. But, you get the point; don’t try to guess.

No specific central bank (except for Saudi Arabia and South Africa) keeps the exact world average of about 10% in gold holdings (a figure which this writer recommends for your own reserves by the way). The fact is that most countries have either a lot lower or a lot higher holdings in the yellow metal. Internal policy comes first, not the wishes of hard-money newsletter writers, or the assumptions being made by recent investors in gold based upon reading said newsletters.

The final trading session of the week started out on a promising note for gold, but the action soon turned to selling (within the first ten minutes of market action) despite the Bangladeshi purchase. Whether the combination of pre-weekend book-squaring and the slight lift in the US dollar will continue to push prices lower on the day remains to be seen.

Early on Friday, the complex was in the red for all but silver values at last check. Indications harvested during said check: gold spot bid at $1,235.70, silver spot bid at $19.90, platinum spot bid at $1545.00 and palladium spot bid at $519.00 per ounce. Another day at $2,080.00 for rhodium. However, the tone shifted later in the morning and gold drew closer to $1,250 while silver overcame the $20.00 mark once again (or, perhaps, it kinda dragged gold higher in its wake).

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