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Bank of England Sells 20 Tonnes of Gold at $267.25
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(July 11, 2001) Today’s bi-monthly gold auction found bids for 4.1 times the 20 tonnes being offered, and at a price higher than the London AM gold fix. These controversial sales soon will have cut British gold reserves in half, and have done much to keep gold prices low. As this 2-year fire sale winds down, we wonder: Does a gold bear eat in the woods?
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.”

 

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