IMF gold sales clearance welcomed by World Gold Council

The U.S. Congress' passage of a bill which would effectively allow the IMF to sell 403.3 tonnes of gold has been welcomed by the World Gold Council which feels the sale will have no impact on the global gold market

FUNCHAL, MADEIRA - 

In a statement issued on Friday, the World Gold Council (WGC) says it welcomes the news that the U.S. Congress has, in effect, finalised the process whereby the IMF can sell 403.3 tonnes of gold "in a manner that will have no impact on the smooth running of the international gold market." The approval was tied to the Military Supplemental Bill which covered additional funding for the Iraq and Afghanistan conflicts for the U.S forces and also approved $108.6 billion in funds to support the IMF in a role to prevent global economic meltdown and the problems which might occur as a result - see: Obama Administration pushes IMF gold sales through House.

The Bill was passed by the House of Representatives on Tuesday, followed by the Senate on Thursday.

While the bill itself does not specifically tie the IMF sales to an orderly sales programme, the IMF has stated publicly that any such sales should be made in co-ordination with current and future Central Bank Gold Sales Agreements whereby signatories have to agree to limit total annual sales to less than a specific volume (currently 500 tonnes). (For a review of the Central Banks which signed the existing agreement and its basic terms go to Central Bank Gold Agreements (CBGA).) However the current CBGA agreement runs out in September this year and although it is due for review, and would, on past agreements, already have been reviewed if there is to be another such agreement there does not yet appear to have been any such review to date.

Indeed as we pointed out in our previous article - it may even be felt that a renewal of the CBGA may not be felt to be necessary as the appetite for Central Bank gold sales appears to have diminished with gold seemingly increasingly regaining lost ground in its role as a key monetary instrument and uncertainty on the future of the US dollar. If there is no renewal then it will, presumably, be up to the IMF to release its gold in an orderly manner in any case.

In the scheme of things the sale of 403.3 tonnes of gold is not a huge amount unless it all came on the market at once, and this does seem unlikely. And the market already seems to have discounted the future IMF sale in any case, so there should not be a negative impact on the gold price. Indeed the lack of reaction to Congressional approval of the sale may well be considered positive for gold.

As Aram Shishmanian, the WGC's chief executive pointed out in a statement: "We are pleased to see that the IMF's plan to sell gold in a structured and non-disruptive manner has gone through due political process without problem, which is a credit to the responsible behaviour of all parties involved in the process. These sales will not constitute any net addition to the amount of gold the market is already expecting from official sector sources as a whole, and therefore we anticipate zero market impact. We believe this announcement, if anything, will lead to positive sentiment among market participants as it clarifies that there will be no net addition to overall gold supply."

He goes on to say "In these times of financial instability, gold's universal role as protector of wealth has come to the fore, not least as a crucial part of reserve asset portfolios. The fact that these sales will effectively rescue the IMF from a difficult situation regarding its own finances is proof of gold's unique investment characteristics, long-recognised by central bankers and institutional and retail investors alike."

Given the IMF's status as "a lender of last resort", the WGC believes it is imperative that the organisation continues to hold large gold reserves and acknowledges the IMF's public declarations that: "The IMF should continue to hold a relatively large amount of gold among its assets, not only for prudential reasons, but also to meet unforeseen contingencies."

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responses to this article

IMF gold sales clarification While WGC has welcomed the clerification on IMF Gold Sale, there are no comments from any of the Central Bankers who are party to Central Bank Gold Sales Agreements. All the signatories will have to agree to limiting their sale quota to accomodate . .more IMF Gold Sale. Assuming IMF Gold Sale gets absorbed by GOLD ETFs, still it can cap any major upside move of the metal. . .less by Ashit Kothi on June 22 2009, 00:27 Find this comment inappropriate? Report it

Gold news recived important knowledge from you, thanks by Asif pasha on June 23 2009, 04:11 Find this comment inappropriate? Report it

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