POLL: IF the US Treasury ANNOUNCES A GOLD SALE, what %age will POG decline?

See Page 1 of the WSJ today. Page 1 Top article: http://online.wsj.com/article/SB10001424127887324595704578239773128108906.html

"The Treasury could be forced to revisit proposals it considered during the 2011 borrowing-limit crisis, most of which it said were unworkable. These included selling assets such as gold and mortgage-backed securities to raise funds... {...} One thing the WH says it won't do is pusue a somewhat fanciful idea of minting a $1 trillion platinum coin and depositing it at the Fed"


Note that order: first Gold, then mortgage-backed securities. Gold: more liquid and less-valuable? Or Gold: antithesis of Dollar-crap Paper...a fantasy to defend at all costs?
Note also the contrast in options: a "reconsidered proposed" Gold sale with the "fanciful idea" of the Trillion $ coin.
So consider the Gold Sale a (hypothetical but) serious option now.

In mid-/Late February: IF the Treasury announces an intent for a Gold Sale (5-10% of US Reserves), what effect will this have on POG?

 

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Recall the Hunt Bros. Silver Corner in 1979, the Govt-announced sale and aftermath (timeline and POS.) The US govt sold ~ 1% of the stockpile, and the price cratered -43%!
Suppose the effects of a govt-orchestrated raid/firesale in 2013 (like the 1981/2 plunge) could be much more rapid in the Age of the Internet: speed up the timeline below.

April 2 1979: POS $ 7.46
4/9/79, Paul Sarnoff (Hunt Bros. collaborator/agent ContiCommodity Services) wrongly implied high POS was defensible by demand alone: “Even if the Treasury sold off the nation's silver hoard of 139.5 million ounces, which is unlikely, it would easily be absorbed by users in a short period."
September 3, 1979: POS $10.90
September 18, 1979: POS $18.30
January 2, 1980: POS $39.95
January 17, 1980: POS +$ 50.
January 22, 1980: POS $34.
~Feb. 28, 1980: POS ~$30.
March 14, 1980: POS $21.
March 25, 1980: POS $20.20
March 26, 1980: POS $15.80

July 22, 1981: POS$ 8.70
In July 1981, the Federal General Services Administration was authorized by Congress to sell 105 million ounces over a three year period; in September 1981 POS fell -11% as a result.
9/14/1981: POS $ 11.24
9/28/1981: POS $ 8.76
10/12/1981: POS $ 9.48
"Christmas will arrive this Wednesday for silver users, hoarders and speculators. Oct. 14 Is when the General Services Administration, complying with congressional mandate, will begin selling most of the nation's remain hoard of silver in minimum lost of 8,000 ozt. It will be the first such federal sale since 1970. If all goes according to plan, the GSA will sell 1.15 million ounces at each monthly auction, or 46.5 million ounces of the remaining 139.5 oz in the West Point and San Francisco depositories"

June 21, 1982: POS $4.98
The GSA sales failed, bids too low; only about 2 million ounces of the more than 11 million ounces of silver offered in the Fall 1981 were sold. In June 1982, POS hit a cyclical nadir @$4.98, 10% of the $48 peak just 30 months earlier.

More 1981/2 Silver news items:
http://www.cointalk.com/t218616/#post1591361

Background to the Hunt Bros. Silver Corner, 1979/80:
http://seekingalpha.com/instablog/1...how-they-did-it-and-what-we-can-learn-from-it

Futures Price Chart, 1981:
http://futures.tradingcharts.com/historical/SV/1981/9/linewchart.html

 

I think a -12% retrace is far too conservative; it could be -12% in less than 2 days!

http://money.cnn.com/2013/01/14/news/economy/gold-debt-ceiling/

 

My perception is that the potential sale of US gold would be out of sheer desperation to pay the insurmountable debt off long enough to keep borrowing more. At an estimated 700 MOz of gold in Ft. Knox, assuming $1650/oz, that's 1,155,000,000,000 - $1.15 trillion. That would buy us roughly a year of deficit spending if the outstanding debt was left untouched. So it could delay default by a year without any additional benefit. With an estimated 7 BOz gold supply above ground it could make roughly a 10% dent in the price on its own. This could very well trigger stop losses and cascade lower, especially if margin hikes come in to "stem the volatility", but I think ultimately the message it sends would spark more than enough buying to offset that after the shake out since it would be sending the world a clear indication that the debt cannot be paid off by conventional means. If they are only selling 5-10% of the reserve then I think it will simply send the same message without the selloff. These potential outcomes of course are pure conjecture, and are worth what you paid. =)

 

InfleXion-
I don't disagree with those who rightly mock the idea that 'selling the Gold will fix the problem.' It might be sheer desperation, I'll grant. But set that aside a moment.

My point is simply this: last time the US threatened to sell PM reserves -- and actually sold just ~1% of said Silver reserves -- POS actually tanked -43%. The record shows that, NOT buying. Caution! And oh, how the SilverFish wailed back then; Reagan relented.

Again in 2000-2, the massive BoE Gold sales coincided with a Gold Low (and the Swiss CB was selling its stockpile secretly too.) Don't forget precedent.

Remember now: Gold-Bugs have no friend in this Administration. Given the high correlation of 'guns-&-Gold' to Tea Party/Birther-Preppers, there's no love lost either side. They lost the election... so why NOT whack Gold, as political comeuppance/pay-back to those same-same Congressional obstructionists? Any political theatre in DC doesn't favor Gold, friend. On the contrary, Gold may become a bargaining chip if the impasse continues to the 11th hour.

Just sayin' - pure conjecture it is, for now.

 

I guess I would want to know what the environment was when POS tanked 43% due to 1% reserve sale. Currently we have no silver reserves, but I digress. Were real interest rates positive or negative? Was the Hunt Bros runup fresh in peoples' minds? How long had silver been demonetized for? Was price action driven by the metal itself or by contracts?

I think the answers to the questions will likely weigh in more heavily than the act of selling reserves in and of itself, as the act can be interpreted differently in different monetary environments with different collective thoughts about what a metal's role is and different mechanisms for price action.

Not to say that these precedents don't have merit and won't hold true, I honestly have no idea. I just prefer to know all the factors if possible.

Gold bugs do have a couple friends though, namely China. We may not have any friends in Washington, but Washington should probably care what China thinks. And if the Fed is going to keep printing $85 billion each month to monetize the debt, that's bullish for gold too even though calling them a friend might be a stretch Of course China might be perfectly happy to buy more at lower prices, and gold contracts could very well crush the price if margins were raised sufficiently. It can certainly happen, but since I don't plan on selling in the near term if ever it doesn't really bother me one way or the other. I'm waiting for metals to be considered money again as a standard or else positive real interest rates before I'll think about any strategy except accumulating.

 

Of course it is only my opinion, but I don't think China has the leverage to stop what they are doing. China tried to start touting the Yuan/Rimb as the basic currency, but that was when the US was down and they hadn't yet reach the same ending. Now the shoes are being put on the other feet. then they were going to start gold trading that would take down the US/Eur exchanges ~ hasn't happened, they actually closed down some operations. The they were going to talk the common man to deposit their money in a bank where the account was gold. The only hitch is that like GLD , the common man could only settle in Chinese cash, the gold would stay with the bank of China. China is an economic and ecological power that could crumble lower than the US any time. Since it is not the common opinion here, take your chances.


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Well I agree -- and play Devil's advocate too. This game of smoke-and-mirrors looks to be approaching Zero Hour on the debt ceiling within 2 weeks then REAL VOLATILITY whacks most mkts.
That's why I obsess about the downside now.

In 1980, Volcker demanded GLOBAL banks deny the Hunts capital& loans; there's precedent for an orchestrated institutional intervention against PMs before. Suppose the e-z money of the Fed's reflationary effort is still in play, even as nothing's been fixed since 2007/8; will they kindly prop all mkts next time, in another Lehman Moment? I doubt it. Wall Street players will get their orders and OBEY: kill Gold!

Eventually though, the Fed/Treas WILL fail (to prop the Dollar/supress Gold) but maybe not until they've literally exhausted everything. And buried alot of johnny-come-lately Gold Bugs, too.

IMO a steep-drop raid target for POG in this most dire scenario would be POG ~ $ 925. - 950. with hedgies bailing/failing... and US stocks gyrating wildly too. I also suppose the LCS stop selling Gold anywhere near "New York Spot" @ ~$1,500. tho. The fraud unravels, bullion premiums will soar. That is just today's wild guess for whatever Worst Case Scenario might unfurl. (I still believe 'Later, Not Now' but we shall see.)

Though we're admittedly down ~-12% from peak already, in a previous Gold Bull Market POG fell -44% (2/24/75-8/25/76) without a Govt Gold Sale.

 

Agreed, China has raised expectations before only to let down. But their massive quantities of gold accumulation speaks to their intent. James Rickards expects them to announce a gold standard when they reach 8,000 tonnes of gold. Most estimates currently put them between 1,000 and very generously at 4,000. But as they are secretive we just don't know. Sometimes they suddenly come out and say surprise, 5 years ago we bought a whole bunch that we didn't tell you about. Plus they are mining plenty that flies under the radar. Until they reach whatever their target goal is, however long that takes, they don't really have any incentive to do anything to cause the price to rise as they are just accumulating. They are happy to sell us our wares and buy up the gold for now. I say that they are a gold bugs friend simply because they are the largest net buyer.

 

I'm not overly concerned about the debt ceiling just yet. Congress has a habit of waiting until the 11th hour and passing through some ill-advised bill while holding the American people hostage. They will raise it, but they will make sure the people are frightened of the alternative first IMO. (I hope that's not too political)

I'm also not overly concerned that the Fed will pull away the punch bowl. The derivatives market is far too large to risk another electronic bank run. That doesn't mean gold won't get monkey hammered by the paper bugs. I think gold has more risk in this regard than silver because gold is plentiful in supply. I'd like to see them try it again with silver and see how long they can deliver the metal. But still, less than $1000? That's a tough pill to swallow. Maybe the paper price will go there but I would be shocked if the physical price got anywhere near. I think we will see a physical market divergence long before that price point shows up on the ticker. I think such a divergence will be the catalyst for everything else waiting in the wings.

 

Bloomberg reports Geithner's suspension of reinvestment of the Fed workers' fund "... leaves Treasury with one last extraordinary measure it can still tap, suspending reinvestment of the Exchange Stabilization Fund."

That's another Gold-price instrument, no?
http://www.slate.com/articles/news_...09/whats_the_exchange_stabilization_fund.html

 

I sure hope it happens. More gold for me. And the downside won't last too long since they'll be in the same predicament next year with no more gold to sell.

 

I agree. POG under USD$1,500. is a tell-your-mom-to-buy moment, a huge (penultimate?) allocation opportunity - maybe the last cheap-cheap POG in our debased FRNs.

But it would STILL freak-out today's Gold noobs. That's why they need to study & understand past retracements in prior Gold Bull Mkts.
We simply cannot 'rule out' a 1975-76 magnitude retrace for investment Gold at this juncture. (That does NOT mean 'Sell' either!)