Why China’s Rumored IMF Gold Purchase, If True, Would Be Highly Significant

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 |  Includes: GLD, IAU
by: J. S. Kim

A yet to be verified story from Rough & Polished, a Moscow based website, reported that China had “confirmed its decision to acquire 191.3 tons of gold auctioned by the International Monetary Fund.” Of course, until official confirmation comes from China, no one will really know if this story is true or not. However, if true, here’s why this story would be hugely significant to the gold market.

One, such a purchase would give more validity to the theory that China, with a vested interest in the price of gold today, is willing to intercede and support gold prices whenever they are being attacked by the US Federal Reserve and Bank of England through their manipulation of fraudulent gold futures markets in London and New York.

Two, it would further support exposing the gold futures markets in London and New York as nothing more than a gold fractional reserve playground that allows the western banking cartel to manipulate gold prices. The last available Commitment of Traders reports indicated that the Commercials were short 663.83 metric tonnes of gold. This position is supposed to be fully deliverable by the Commercials should the offsetting longs ask for delivery. Even though the Commercials very likely hold some of the offsetting longs through spread positions, that short position still represents a ton (no pun intended) of gold – gold, that according to COMEX regulations, must be available for physical delivery.

However, if an incredibly large tonnage of physical (not paper) gold were really available for purchase on the COMEX, why would China feel an urgency to take delivery of a mere 191.3 tonnes of gold now through the IMF? Could it be because India “scooped” them the last time the IMF made a gold sale and China does not wish to be left twisting in the wind again with very little physical gold available for delivery in the global futures markets? If the China IMF gold story were true, the above would be plausible reasons for China acting now rather than later.

Remember, last week in my article “IMF Gold Sales v. the Alchemy of Gold Futures”, I stated,

”If you were India, China or the United Arab Emirates and you wanted to buy 200 tonnes of gold at the price established in futures markets, but you knew that there was no possible situation whereby 200 tonnes of gold would ever be delivered to you via the futures markets, what would you do? Would you buy 200 tonnes of gold in the futures markets only to know that you would suffer a default of this delivery and likely be forced to pay a much higher price in the future or would you try to arrange to buy 200 tonnes of gold NOW from the IMF or another Central Bank? Of course, you would choose the latter tactic.”

If it turns out that this story is true, then apparently the Chinese government agrees with me. Also remember that China, as the world’s largest producer of gold, is likely to keep the vast majority of its future gold production in house. Thus if China is still turning to the outside market to buy its gold to buttress its gold reserves in addition to its internal production, then this story is very bullish for the long-term future of gold.

Three, if this story is later confirmed to be true, only an inside Chinese source could have leaked this story. No inside source would have leaked this story unless the deal had already been sealed, as such information pre-sale would be very detrimental to China as it would lead to a higher purchase price. If this story is true, this again, lends credence to the theories that China now serves as a very important counter to the gold price suppression schemes of the western banking cartel. Remember, as recently as five years ago, the western banking cartel essentially faced ZERO opposition to its price suppression schemes in gold and silver. Thus, the emergence of a powerful opposition force would be a huge development to the gold market.

Finally, if this story were confirmed, then this event would likely allow gold as well as mining stocks to form a bottom in preparation for a move higher. Though the agents of the western banking cartel always like to paint gold supporters as a fringe lunatic movement that perpetually believe gold is heading to $10,000 an ounce tomorrow, this is the farthest possible representation of reality. I have always found supporters of gold to be among the most well informed people in the world in regard to understanding how stock market and futures manipulation schemes operate versus those that remain blind to this reality.

To dispel the notion that gold supporters never recognize and play the downside of rapid downward corrections in precious metal, on February 22nd, more than 10 hours before New York markets opened, I sent an alert to my subscribers in which I stated,

“Even if gold futures rise as high as $30 a day in Asia today [gold futures were up $9 an ounce at the time in Asia], a selloff in London and New York today or tomorrow [February 22& 23, 2010], given the action in gold futures and gold stocks last week, would still not surprise me one bit. Of course, if this happens, and I think it is likely to happen, then we could see some more weakness in gold stocks to begin this week before they resume their rise.”

And this is exactly what has happened thus far. Though we are not yet out of the woods in terms of this current gold and silver correction, the China story, if confirmed, could be the trigger to put in the bottom for this current correction.

Of course, if this story later turns out to be unfounded, then it may trigger a continued temporary, albeit likely brief, further slide in gold prices. In conclusion, though on the surface China’s yet to be confirmed purchase of gold from the IMF seems to be just a passing note unworthy of attention, if it turns out to be true, we may very well look back at this event as marking a crucial turning point in the gold market.

Disclosure: No position