by Addison Wiggin & Ian Mathias

• IMF set for massive gold sale… how and why China might buy up every ounce
• But is gold really the best precious metal? The surprising answer for 2009 thus far
• Chris Mayer and industry legend say this commodity is due for a rebound
• Lies, damned lies and statistics… the latest gov number has us declaring, “Balderdash!”
• Plus, readers rage over the possible sugar tax… your thoughts below

  Yesterday, we reported, with a little unease, one of the biggest gold sales in history. The IMF is looking to get rid of an eighth of its reserves -- over 400 metric tons, worth $13 billion. They’d been publicly mulling it for a long time, but still… can’t be a positive for gold prices.

Today, some better news and a sign of the times, wrapped into one: China is rumored to be a buyer of the IMF’s stash for sale -- maybe the only buyer.

"China will consider buying if the price is right and the return is relatively high," a mystery Chinese central banker told Reuters. No telling just how much they’d pick up, but given their $800 billion in U.S. Treasury reserves, we’re pretty sure China can afford as much as they want.

(For some perspective, go grab one of your 1-ounce gold coins. If you had 32,149 more, you’d own one metric ton. If China completes this purchase -- all 403 tons -- that’ll be enough gold to fill a 8’x10’ office to the ceiling.)

  “China holds just over 1,000 tons of gold in its official state reserves,” notes Byron King, who always has a finger on the gold beat. “Probably more, if you consider ‘stealth’ holdings categorized as industrial stockpiles. If China buys up to 400 tonnes of gold from the IMF, it'll increase China's reserves by 40% in one fell swoop. (And stick the IMF with a bunch of depreciating dollar assets.)
 
“Will an IMF gold sale to China affect prices? If done correctly, no -- or not much, in the short term. Because if done correctly, it'll happen quietly… there won't be any announcements beforehand, and we'll only find out about it when the IMF and China next report their gold holdings. It's not like any Chinese trucks will be showing up at the mines and refineries taking ‘current’ production. That's exactly the way that the Chinese want this to happen.

“Still, it'll dramatically increase China's gold holdings, strengthening the country’s long-term monetary hand. China does NOT want to see the world go to a nondollar ‘gold-like’ standard… not yet.
 
“Because China does not have enough gold in its vaults... not yet!

“On that point, they're working on it. It'll take time. It's a long-term play, a long-term strategy. That's why investors have to keep an eye on the long term and buy gold and mining shares now... for the future of inflation, and as the wheel of history turns toward China.”

We can think of no better place to start than Byron’s latest special report on investing in precious metals… it’s right here.

  China should look into some other shiny metals, too. For all the hoopla over gold this year, it’s actually been a distant third to its shiny brethren -- silver and platinum:

Silver and platinum are still well off historic highs. At $1,335 an ounce, platinum is 40% from its record high in March 2008, thanks mostly to its heavy use in auto parts. (Hence the spike in catalytic converter thefts last year.) Silver prices are similarly depressed, still over 20% lower than 2008 highs and down 65% from the peak of the Hunt brothers scandal in 1980.

  “Steel production will probably fall this year by the largest margin since the Second World War,” notes Chris Mayer, keeping today’s metals theme rolling. “Most folks in the steel business have gray and soggy outlooks for 2010. Most, but not Lakshmi Mittal.

“Mittal is the chairman and largest owner of ArcelorMittal, the world’s largest steel company. Therefore, his words carry some weight in the steel markets. The fact that these words are so contrary to what everyone else seems to think is significant…

“Mittal is singing a rosy tune that has the market atwitter. He thinks steel demand could grow more than 10% in 2010, which would be a strong rebound, indeed.
 
“Whether Mittal turns out to be right or not will hinge on what happens in China. China makes up about half of the world’s steel demand. That’s where the controversy begins, because there is just a lot of uncertainty over China’s economy right now.

“I think it’s noteworthy that even those who think Mittal is way too optimistic are still calling for a 5% increase in steel demand next year. The contraction in demand was so severe and happened so quickly in 2009, it is hard to imagine steel demand not rebounding some next year.”

Steel is one of those primal goods that the world as we know it can’t live without. That’s the theme that permeates Chris’ latest Special Situations portfolio… check out the “Primeval Portfolio” here.

  Much to the delight of nearly every commodity, the dollar is falling again today. The same old story has the dollar index down nearly a full point from yesterday’s high, now at 76.2. Just a few more tenths of a point will spell a new 2009 low.

  As we forecast yesterday, the market is meandering about, waiting for direction from the Fed. After a small loss yesterday, indexes opened to a small gain this morning. Again, we don’t expect much until the FOMC emerges from its meeting tomorrow afternoon.

  Only one bit of data to report today -- a highly suspect one, we hasten to add:

Home prices are down 4.2% from this time last year and 10.5% below their 2007 peak, the Federal Housing Finance Agency claimed this morning. To that we say balderdash!

Just 10% from the peak? C’mon… we don’t know who the FHA thinks their fooling (certainly not anyone in California, Florida, Arizona or Nevada). The S&P/Case-Shiller home price index claims that home prices are down over 30% from their peak, which sounds a lot more realistic to us. If this crisis is rooted in a 10% correction in housing prices, it’ll surely be remembered as one of the biggest overreactions in American history.

  That measly 10% fall has somehow caused yet another record number of mortgage delinquencies in August, Reuters reported yesterday: 7.58% of all U.S. homeowners are at least 30 days late on a mortgage payment. That’s a record, and the fourth straight month of rising delinquencies.

  So no surprise… the FHA is quietly taking steps to reduce risk. Namely, they announced last week plans to hire their first chief risk officer in the agency’s 75-year history. The agency lets people buy homes with 3.5% down and they’ve never had anyone to oversee risk! Oy… wonder why 14% of FHA loans were past due in the second quarter?

  The government is looking to bolster its unemployment program, too. The House will likely begin debate on a bill today that will extend unemployment benefits to states with jobless rates higher than 8.5%. With 27 states fitting the bill, plus D.C. and Puerto Rico, that would save about 314,000 people whose benefits are set to expire this month and about a million who will run out at the year’s end. Should it pass, some unemployment insurance recipients could collect benefits for as long as 79 weeks.

The “good news” is that it won’t cost you a thing… unless you own a business. The bill will likely extend a federal tax on employers for another year -- a $14 per employee fine that’s been levied for the last 30 years.

  “Oh, no!” a sarcastic reader exclaims, adding to the sugar tax debate that’s been raging in our inbox. “If we taxed our sodas by 2 or 3 cents an ounce, it might approach what we pay in Europe... 3.00-4.50 euro per 10-ounce bottle. We might be forced to drink wine with our meals instead.”

  “If Congress had any backbone,” adds another, “it would either ban colas or tax them as we now do cigarettes, since we are insidiously ruining America's health, as we have with tobacco. It took 50 years to battle the tobacco industry to simply a draw (we still have tobacco and a huge health toll). It may take just as long to take on and reach a draw with the corn and agriculture industries, while we all pay the bill.

“And pay the bill we do, since it takes many years for the impact to arise, with typically Medicare (and, hence, taxpayers) paying for smokers' COPD and heart problems -- as well as a vast range of increasing neurological disorders among the over 65 regarding the mercury accumulation from colas (e.g., the rise in Parkinson's, Alzheimer's, MS, etc.). This is one of those issues on which the liberals and the fiscal conservatives should be tightly together in the same bed!”

  Last, while rummaging through our blog this morning, we came across this snarky bit… don’t ever accuse us of censoring our readers:
 
“Tax soda? I can’t believe any of your readers think this is in any way an acceptable idea. I guess that’s the problem with a free e-letter: You get the customers that can afford you!

“How about we go to the heart of the problem and tax the fatties. I would suggest an annual 50% tax based on weight above BMI. To make it fair, we’ll use a data set for the average American scaled for age and height. The revenue can go straight into rehanging the ropes that used to be in every middle school gym. It’s not rocket science to deduce that the largest welfare system in the world has created the largest population in the world.”

The 5: Well… that’s one idea.

Best,

Ian Mathias
The 5 Min. Forecast

P.S. You have less than 48 hours left to act before this story hits the mainstream. Our tech analyst Patrick Cox says it’ll be “the news release that changes history.” If you want to get in before the crowd, click here before tomorrow night.