In a move that the gold market did not anticipate, the IMF sold 200 tons of gold directly to India’s central. It was widely known–commented on on this blog February 12, 2008–that the IMF would be a gold seller.

Several years ago, the IMF let known its intentions to sell 400 tons of gold and announced that the sale would be in compliance with the Central Bank Gold Agreement (CBGA) so as not to disrupt the market. Instead of selling under the CBGA, the IMF sold directly to the Reserve Bank of India.

Some analysts are saying that they are surprised that the buyer was India and not China. Actually, I think they hoped that China would be a buyer as the IMF sold under the CBGA. Neither China nor India gave any indications of dealing directly with the IMF.

Now, gold market analysts are speculating that China will take the remaining 200 tons. And, it is pure speculation because no analysts have pipelines to the decidafiers at the People’s Bank of China, as China’s central bank is known. More important, though, a major precedent has been set.

The argument against central banks buying gold has been that the central banks would be cutting their own throats. Since they are major holders of dollars, any purchases of gold would be attacks on the dollar because dollars would be eschewed in favor of gold. Now, the Reserve Bank of India has set a precedent: it is acceptable for central banks to convert large quantities of dollars into gold. Who will be next?

Possibly China, but why not Taiwan or Japan, both major holders of dollars.

I have no doubts but that the bullion houses that are short huge quantities of gold on the COMEX, as discussed in Gene Arnsberg’s latest Got Gold Report, were counting on the IMF sales being dampers on the price of gold. As I speculated in my September 12 post, sometimes the big boys are on the wrong side of the market.

This remains a major bull market for gold and silver. Investors already with big positions have the luxury of waiting on price dips to buy. Investors who have not yet entered the market should consider biting the bullet and entering at these levels. The major news about gold is to be bullish, and there is no way of putting a top on this move.

My Sept. 7 post noted that gold had broken out from a consolidation triangle, a move that often forecasts still higher prices. And, higher prices we got, with gold hitting an intraday high just short of $1,012.00 in the New York market on Friday, Sept. 11. Silver followed suit, closing at $16.72. However, it was learned Friday that the large commercials (LCs) increased their COMEX short positions in gold to an all-time record high of 270,797 contracts. The previous record was 252,740 contracts, set in February 2008.

It needs to be noted that the reporting cutoff was Tuesday, which means that the LCs had three additional trading days since the report to add to (or reduce) their positions. The common guess is that they increased their shorts, but we will not know until Friday, Sept. 18.

Increases in the LCs’ short positions often have been harbingers of price declines, sometimes precipitous declines over a few days. However, the LCs have not always enjoyed lower prices after increasing their short positions. In fact, the previous record 252,740 contracts in February 2008 came just before sharp price increases. Although the LCs often get it right and get to cover their short positions at lower prices, that is not always the case.

Gold’s mighty move from the summer of 2005 through the spring of 2006, basically a move from $450 to $700, occurred while the LCs carried large short positions, resulting huge losses for the LCs. So, the big boys are not always on the right side of the moves.

If the LCs always increase their short positions on price rises, there have to be times when they suffer losses because gold and silver are in long-term bull markets. Could this be one of those times?

Gold is up three-fold since 2001, from $250 to $1,000. Silver’s 2001 low was just above $4 to just short of $17. This is a great gold/silver bull market, and I don’t see it ending any time soon. If you’re in, buy the dips. If you’re not yet holding physical gold or silver, buy now. Get comfortable with the process. See that the metal you’re getting is real, not electronic impulses on silica bubbles.

Readers of this blog mostly are long-term gold/silver investors who are not concerned with intermediate moves in gold/silver prices except to use dips in prices as opportunities to add to their positions. Still, daily $1 jumps in silver and $20 jumps in gold are of interest to all precious metals investors. If nothing else, investors have wonder if the moves are of significance in the long-term view.

Gene Arensberg, analyst and editor of Got Gold Report, believes that gold’s September 2 price increase of $21.50 was significant in that it was a breakout from a huge consolidation triangle. Arensberg expects the trading to continue in the direction of the trend that preceded the consolidation. The direction of the trend preceding the consolidation triangle was, of course, up.

This is reassuring to investors who have bought in the past few months. Investors who entered the gold/silver market a few years back were long ago confident that they made correct decisions. Technically, the picture is not as clear for silver, but the price action to the upside confirmed gold’s move out of the triangle.

Reassuring to silver investors are the positions reported by the large bullion banks. The nominal sizes of the banks’ short positions in silver were essentially unchanged, meaning that the banks did not add to their short positions as prices rose, which is what they usually do if they expect lower prices in the intermediate. When the bullion banks expect lower intermediate prices, they add to their short positions.

Relative to all commercial traders’ (36 in all) net short silver futures positions, the two bullion banks’ percentage fell from 76.3% to 62.2% over the past month. This is another short-term positive sign for silver investors as it suggests the bullion banks are not yet ready again to take increased short positions in silver.

Arensberg’s analysis also shows the bullion banks lightening their short positions in gold, which may be the reason that gold broke out of the consolidation triangle. Or, the bullion banks may have reduced their short gold positions out of fear that gold was going to break out the triangle regardless of what they did.

Although following what the bullion banks are doing is interesting (sometimes fascinating), the overriding reasons for buying gold and silver are the expansive monetary policies of the world’s central banks, primarily the US central bank, the Federal Reserve System. In the short-run, the bullion banks’ activities will influence the prices of gold and silver, but in the long-run the quantity of freshly-created fiat currencies will determine gold and silver prices.

Arensberg’s Got Gold Report is, in my opinion, the best free technical analysis of the gold/silver market, especially his look at the large commercials’ and the bullion banks’ positions in the gold and silver markets. I encourage gold/silver investors interested in technical analyses to read Arensberg’s Got Gold Report, a copy of which will be posted on www.stockhouse.com in a few days. When the report is up, I will provide a link.

As noted on this blog before, the IMF wants to sell gold to fund more international welfare programs but must have the approval of the US Congress before it can sell any gold. In a February 2008 post, I speculated that approval under a new Congress would be likely. Now, approval appears imminent.

This week a House-Senate committee will meet to reconcile differences between the House and the Senate in the Supplemental Budget Appropriations Bill. Buried in the bill is approval for the IMF to sell gold. No one is objecting to the sale.

To some, talk of a major institution selling gold is frightening. But, as I noted in the February 2008 post, the gold market has seen IMF sales before and has weathered them nicely.

As the mainstream media report the approval, there may be some downside movement in gold, but at least one gold analyst and investor sees the IMF sale as positive for gold.

Brian Kelly, writing for seekingalpha.com, sees China stepping forward and buying the gold. Kelly doesn’t think that it’s a coincidence that Treasury Secretary Timothy Geithner just ended a trip to China.

By all reports, Geithner avoided all contentious issues with China, such as massive Chinese theft of intellectual property or revaluing the Chinese currency. Instead, he sought a “greater role for China in the International Monetary Fund.”

Kelly further speculates that a sale to China would upset “India and several of the Gulf States as they all have expressed interest in purchasing the gold. If this occurs, nothing could be more bullish for the price of gold.”

Frankly, I haven’t seen anything substantive about India or any Gulf States wanting to buy the IMF gold. But, I guess it could be true. If I were sitting the gargantuan quantities of dollars that those nations hold, I’d want to buy gold. I just wonder if Kelly really has such information or is he, as a gold investor, simply wishing a major buyer would step forward.

Regardless, when news comes out that Congress has approved the sale of IMF gold, it will roil the markets. Bargain hunters may have opportunities to buy on dips in price. And, if Kelly is right about India and some Gulf States wanting to buy the IMF gold, he will certainly be right about that being bullish for gold.

Spreading across the Internet like a wildfire is the Bloomberg release that “Northwestern Mutual Life Insurance Co., the third-largest U.S. life insurer by 2008 sales, has bought gold for the first time in 152 years to hedge against further asset declines.”

“Gold just seems to make sense; it’s a store of value,” Chief Executive Officer Edward Zore said in an interview following his comments at a conference hosted by Standard & Poor’s in Brooklyn. “In the Depression, gold did very, very well.”

Although many gold investors do not need validation to make them feel good about their gold investments, other investors like to know that such an esteemed institution as Northwest Mutual shares their feelings about how to protect against potential declines in the value of the dollar.

The insurance behemoth has accumulated about $400 million in gold; Zore did not disclose Northwestern’s plans for future gold investing.