From time to time on this website we have reported results of
these Bank of England gold auctions since they were first
announced in the spring of 1999. Since that time, some 340
metric tonnes of gold, worth some US$2.92 billion, have been
sold in what we have referred to as “the estate sale of the
British Empire.”
After 13 gold auctions, occurring every other month, we
sometimes wonder if these sales are even worth reporting. The
only practical effect has been to dampen the market price of
gold, and give market commentators of all stripes a chance to
climb on their soapboxes.
The very mechanics of the sales have ruffled quite a few
feathers among gold holders. The feeling is that the most
brilliant financial minds in the world couldn't have devised a
better method to guarantee a low price than the Bank of
England's pre-announced, large-lot auctions of a continuously
scheduled nature.
Those who have bought gold over the past couple of years
(including a large number of our clients) and those who are
thinking of buying gold soon (our future clients, we hope),
should give thanks to the Bank of England for keeping the price
of this timeless and brilliant metal very affordable. 13
auctions have been held, some 10.9 million ounces have been
dispersed, but now the gold market has only 4 more of these
planned sales hanging over its head.
These gold auctions have invited vulture-like behavior among
traders, speculators, and others. Every other month, they swoop
down and feast on a scheduled dumping on the market of a
substantial amount of gold.
And sure enough, at 8 sales out of 12, weak demand has actually
driven the price realized by the Bank of England to a point
below the prevailing market price at that time. The Bank of
England has essentially assured that its own sales are designed
to realize the actual lowest price possible for its own gold.
Curious, isn’t it?
Today’s was the second sale in a 3rd and final set of six
bi-monthly auctions of 20 tonnes per auction. Demand was better
than usual, with a modestly higher price and an
over-subscription rate of 4.1.
“Referring to both the subscription rate and the price, I think
it was positive for the (gold) market,” David Meger of Alaron
Trading in Chicago was quoted, “The other supportive issue to
the market right now is the dollar is also down significantly
against some key currencies.”
Other traders and analysts saw today’s auctions as positive,
“very positive,” and “extremely positive, in light of normal
seasonal weakness." Yet, some pointed out that it's not likely
to mean much unless the dollars’ run is finally over.
And perennial gold bear Andy Smith of Mitsui, in a report on
today’s gold auction quoted on Reuters Newswire, provided us
with this appetizing soupcon of wisdom, demonstrating an
intimate knowledge of entomologically based cuisine that we
never would have imagined he had in him, to wit:
“The aftertaste of auctions which funds enter net long is
similar to that from undercooked scorpions.” |
