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Gold nose-dived nearly $6 on a surprise announcement by the Dutch that
they would be liquidating 100 tons of gold next year and another 200 in
the five years thereafter. It appears to be recovering as go to fetch this
over to the server...now down $3.70.
Though the announcement came out of the clear blue, market analysts
knew there was a final 300 tons of sales to be announced at some point
in the future. This is the last piece in the Washington Agreement puzzle
which called for 2000 tons to be liquidated over the next five years --
1300 by Switzerland, 400 by Britain and now the final 300 from the Dutch
-- one of the signatories of the agreement.
The announcement sent the price down in London nearly $7 at one
point, but the yellow managed to recover a good portion by day end in London
finishing down $3.60. The pre-sale announcement had gold market analysts
scratching their heads. Kamal Naqvi of London's Macquarie Equities spoke
what was on the minds of many when he was quoted by Bridge News as saying,
"The Dutch have always been very clear that they wanted to sell, but
the timing is very bizarre. It's just another indication of the poor way
that central banks perform their gold related activities," he said.
He also told Bridge that this plan should have been announced when the
original agreement was detailed in September, adding that this was very
"clumsy handling". Coming on top of the Bank of England activity,
the Dutch announcement seems superfluous but then again little that the
central banks -- including our own -- have done in this very volatile year
appears prudent from the outside looking in with one notable exception
-- the Washington Agreement to limit sales and leases of gold. At any rate,
100 tons of gold from the official sector is only 10% of the structural
deficit between production and consumption of over 1000 tons in the gold
bullion market and the Dutch announcement is unlikely to have a lasting
effect. When the numbers are absorbed and the analysts re-run their supply
demand tables, the near term reaction could be the opposite of what we
are seeing now. The market might like the fact that only 100 tons, not
300 tons, are coming on the market in year 2000.
Meanwhile, there remains the dire need for gold in the bullion bank
sector we mentioned on several occasions here. The announcement might act
to bolster confidence in that very nervous sector -- and that might explain
the bizarre timing -- just a little psychological boost from one friendly
central banker to another, it seems.
Meanwhile, the dollar is getting hammered mercilessly as financial
players worldwide watch the Federal Reserve pump up the money supply like
there's no tomorrow in preparation for the Year 2000. James Grant (Grant's
Interest Rate Observer) in an article title "New Year's Confetti"
points out that the Fed is preparing for "millennium festivities"
with "massive credit creation" -- with a three month annualized
growth rate of 24%.
Says Grant (E-mail = firstname.lastname@example.org), "Either the financial
markets have failed to notice the stupendous growth in the Fed's balance
sheet, or they have written it off as a millennial event without monetary
significance. However, unless those dollars are promptly reeled back in
again after the new year terror passes, monetary significance there will
be certainly be." His outlook: "In response to the gratuitous
over issue dollars, the bond market vigilantes out to saddle up, and the
gold market ought to rally. The dollar ought to weaken and not only against
The dollar was derailed in Europe this morning, the monetary creation
no doubt a driving force, though it was improving slightly against the
yen. Beleaguered Japan got more bad news about their economy over the weekend
-- the growth rate was down 1%.
We'll see how things work out with gold as the day progresses. That's
it for today, fellow goldmeisters. See you here tomorrow.
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