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.

However, as of this writing, the Mint’s web site shows that 86,000 Buffalo Gold Coins have already been sold. Further, wholesalers have placed second orders with the Mint and were given no indications that the coins are in short supply. This seems to indicate that the Mint produced a large quantity before releasing them, and I’m now guessing that mintage of 2009 Gold Buffs easily will exceed 100,000. In 2008, the US Mint sold 172,000; in 2007, 167,500 coins were sold. In 2006, the first year they were minted, the Mint sold 323,000.

As discussed on our web page about Gold Buffalo Coins, packaging remains a problem. Of greater concern is that promotions of First Strike coins have already surfaced.

We caution against paying high premiums for so-called First Strike coins. Actually, since our 2006 expose of First Strike coins, most promoters now call them Early Release coins. By either name, we warn investors not to buy them at high premiums because the premiums on such coins do not hold up in the secondary market.

CMIGS has 2009 Gold Buffaloes in original packaging for immediate shipment. Buffs carry premiums a few dollars higher than the US Mint’s Gold Eagles.

Right now, Gold Buffaloes are priced the same as new 1-oz Gold Eagles. If demand exceeds supply, Buffs may pick up premiums as did 1-oz Gold Eagles during the 2008 financial crisis.

The Gold Buffaloes present an interesting situation. Federal law requires the Mint to produce Buffs every year, but the law does not state the quantity. Further, the Mint did not disclose the number of coins it plans to produce. However, the announcement said that “should demand exceed supply” the Mint will institute “allocation procedures.” Considering the how the Mint worded its announcement, it may not be planning on turning out many Gold Buffaloes.

If the Mint produces only 50,000 to 100,000 Buffalo gold coins, they could be really good buys, with premium potential in future years. Premiums could come from them being a low mintage year as well as from telemarketers promoting them. Telemarketers love to hype low-mintage coins. Of further interest is the Mint’s announcement about fractional ounce Gold Eagles.

Ordinarily, by October the Mint is gearing up for next year’s coins. Actually, in past years in late October and early November, the Mint has stopped selling current-year coins so as to dedicate all efforts to the following year’s production. This year, however, in December the Mint will take orders for 2009-dated fractional-ounce Gold Eagles for the first time this year. As with Gold Buffaloes, mintages of fractional-ounce Gold Eagles coins could be small.

Meanwhile, gold buyers wanting fractional-ounce gold coins should consider the fractional-ounce Krugerrands, which only recently became available. They are priced at government-issued fractional-ounce coin prices. However, the quantity for immediate shipment is not large as the importer has not been bringing in large quantities. The next shipment from South Africa is expected later this month.

If you would like to discuss buying Gold Buffaloes or fractional-ounce Krugerrands, call us at 800-528-1380. Our brokers take call 7:00 a.m. to 5:00 p.m. MST, Mondays through Fridays. If you would like to know more about doing business with CMI Gold and Silver Inc., visit our Doing Business with CMIGS page.

The first shipment is expected to hit the U.S. about September 24, and we expect to begin shipping to buyers the following week. Note: that is what we anticipate. We have absolutely no control over when the coins will arrive, but if the shipment time of these fractional Rands goes as recent imports of one-ounce Krugerrands have gone, the coins should be here as anticipated.

Three sizes will be available: ½-oz, ¼-oz and 1/10-oz. We anticipate the biggest demand for the 1/10-oz Rands and are going to attempt to carry a large inventory of them, which means we will be able to make prompt shipments to buyers—unless the demand is bigger than we anticipate.

We have not been told how many fractional Rands are being imported, and the importer does not know if the South African Mint will turn out additional fractional Rands in the near future.

On another note, as this is written we have ten Specials posted on our Specials Page, all of which are gold items. Generally, the items we put on the Specials Page are lesser-known gold or silver investments, forms of gold or silver that we cannot offer on a regular basis because we cannot always get them.

Still, they are good investments because they are priced much lower than if we had to go into the market to get the items. A good example: Austrian 100 Corona gold coins, which were standard gold bullion coins along with Krugerrands and Mexican 50 Pesos in the 1970s, are put on our Specials Page when available. The Specials Page offers investors opportunities to buy low premium gold.   As the items on the Specials Page are sold, they are removed.

If you would like to discuss buying the fractional Rands or any of the items offered on the Specials Page, call us at 800-528-1380. Our brokers take call 7:00 am to 5:00 pm MST, Mondays through Fridays.

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.

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.

The White House projected that over the next ten years the budget deficit would be $2 trillion more than previously projected. Critics had loudly condemned the earlier projections as “rosy.” “Out of touch with economic reality,” some said. The critics have been validated.

The CBO now says the ten-year projection for the deficit is $7.14 trillion, some $2 trillion more than projected as recently as March. It seems that every time new deteriorating economic statistics are evaluated, the economy looks even more bleak and the deficit projection looks even bigger. Can any of the numbers be relied on? Probably not.

It was only six months ago that the White House and the CBO numbers were some $2 trillion lower. What will be the ten-year projection in another six months?

The CBO’s $7.14 trillion projection assumes no changes in Obama administration policies. If the administration’s fiscal plans are allowed for, the CBO’s ten-year deficit projection swells to more than $10 trillion. Historically, the CBO has produced more accurate predictions than the White House. White House predictions nearly always are politically tainted regardless of what party holds the presidency.

The White House expects that economy to shrink by 2.8% this year compared with its earlier estimate of 1.2%. It also expects unemployment to exceed 10% and to stay higher than 8% until the end of 2011. The White House and the CBO see this year’s budget deficit at around $1.6 trillion, which probably will be right considering that this fiscal year ends September 30.

This development will, according to The Silver Institute’s World Silver Survey, increase the proportion of silver used in electronic devices in the coming years. Also according to the World Silver Survey, 61.4 million ounces of silver were used for electrical and electronics fabrication in the US in 2008, with world use at 201.7 million ounces.

A more detailed discussion of this development and its impact on the silver market can be found in the 2009 Second Quarter issue of Silver News.

Silver News also reports continued improvement in the use of broad-spectrum antimicrobial properties of ionic silver in wound dressings. Antimicrobial ionic silver kills a broad range of pathogens and is being hailed as a major break through in wound dressings. Although antimicrobial ionic dressings now are used mostly in hospitals, products for over-the-counter sales are coming available.

Additional developments for uses of silver in the medical field are discussed in the 2009 Second Quarter issue of Silver News.

Additionally, Silver News reports on the development of a line of jewelry boxes that promise to keep silver tarnish free for up to 35 years. The boxes are lined with a cloth that absorbs gases that cause silver to tarnish, according to the developer, Wolf Designs, which has been making jewelry cases since 1834.

With gold just off all-time high prices, silver jewelry is gaining in popularity. Supposedly, Pandora Jewelry, which is basically silver jewelry, is now the best-selling jewelry in the world. Pandora’s success comes from the company offering a wide variety of attractive but inexpensive pieces.

Anyone remember Hillary Clinton’s “brilliant” commodity trading that made her nearly $100,000 in a few months while husband Bill was governor of Arkansas? It is suspected that Hillary’s profits came from a setup where a wealthy benefactor took the losing sides of all Hillary’s positions and Hillary collected the profitable trades. If someone would do that for a governor’s wife, what would they do for the Secretary of the Treasury of the United States?

Comedy Central did a delightful video on Geithner’s house; well worth the view.

Arensberg notes that iShares Silver Trust (SLV), the largest silver ETF, lost no holdings in the last reporting week but gained 42.07 tons the prior week. Further, the trust continues to hold more silver than the original custodian agreement called for, now reporting 8,766.93 tons of the metal. SLV turned out to be much more successful than anticipated. Still, Arensberg recommends that SLV investors convert their shares to physical silver.

He notes that premiums on the common forms of physical silver are “. . . back to normal or near normal and availability seemingly adequate regionally, now might be an excellent time to convert shares of SLV into the real deal physical metal.” Later in the report, Arensberg says, “Call it intuition, or trader’s instinct, or whatever, we believe those planning to convert gold and silver ETFs into physical metal might want to do so with a sense of urgency now (emphasis his), as we doubt that premiums will remain near normal for an extended period. Regardless if gold and silver move substantially higher or lower we expect to see premiums moving higher toward the end of the year and maybe much sooner.

From my perspective, I see premiums on physical silver and gold products about as low as they are going to get.

Increasing Arensberg’s bullishness on silver is his analysis of the large commercials’ positions in the silver futures markets. The LCs have increased their short positions in gold, but have steadily refused to take bigger short positions in silver. See Arensberg’s Got Gold Report for his analysis.

Finally, Arensberg recommends that long-term precious metals holders consider switching from gold to silver because of not only market conditions but also because of the gold/silver ratio, which is hovering in the 70:1 area. This is a recommendation with which I agree.

Historically, silver has outperformed gold (on a percentage basis) in all precious metals bull markets. Now, the silver market is experiencing a genuine shortage that should cause silver to continue its trend of outperforming gold.