Warren Buffett and International Monetary Fund pressure Gold prices

Gold prices took a bit of a hit with news hitting the markets early on Tuesday’s trading day. Lifting the general markets is the news that Warren Buffett has offered to provide reinsurance coverage for municipal bonds. While this does nothing for non-municipal securities, nor the mortgage backed loans that have caused severe losses across the financial markets, the move by Buffett has added to the confidence levels of investors. Early gains on the Dow Jones Index have hit 224 for the day.

Added to this is news that the International Monetary Fund (IMF) is planning to sell gold into the market. Approved over the weekend, the news was announced Tuesday and has driven down the April gold futures prices slightly. Gold continues to maintain above $920, but the ultimate effect of the sale has yet to really factor into the market.

Considering that South Africa, responsible for the 2nd largest amount of gold in the world, has reduced supply numbers due to power outages in that country the timing of the IMF sale seems to be an attempt to balance demand and keep prices lower.

"However, the fact that dips are still drawing very strong buying interest, and with the rest of the precious complex pushing higher, it seem likely gold will follow,” said James Moore, an analyst at TheBullionDesk.com.

The real thought to keep in mind is that if the offer by Warren Buffett instills enough confidence in the U.S. markets that investors feel a recession will be short-lived, profits in gold will likely be taken and depress the price. The IMF sale will have a real affect on gold spot prices, but will likely only have a short-term effect considering the lack of supply from South African mines.

Another factor that I believe has not hit the market yet are the 1st quarter results of the financials and banks still plagued by sub-prime mortgage loans. While Project Lifeline is being announced at 11:30 and will include home owners that are not in the sub-prime category, it does not affect losses that have already occurred. I continue to expect that all major losses will not be fully accounted for until the end of the 2nd quarter, thus still a pressure on the markets and positive for gold investors and stocks.

As these facts are absorbed by the markets, increased volatility and further upward pressure on gold should continue. It’s likely that the Philadelphia Gold and Silver Index and Amex Gold Bugs Index will reflect this pressure. Several Canadian gold miners are also likely to have a short-term boost as they will have increased sales due to lack of competition.

Perhaps most important will be the timing of all these events. If they are moderately spread out and occur individually I expect that they will not be able to retard the move in gold. Combined or occurring close together the effect will be magnified.