IMF to sell 400 tons of Gold

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npwebb's picture
npwebb
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Posts: 111
IMF to sell 400 tons of Gold

IMF announced Friday that approval has been granted for the sale of 400 tons of gold.

I'd expect to see China to buy a large sum. 

Is there any way to monitor how much of the money raised by IMF will be used to support new SDR issues?

http://www.imf.org/external/np/sec/pr/2009/pr09310.htm

Quote:

IMF Executive Board Approves Limited Sales of Gold to Finance the Fund’s New Income Model and to Boost Concessional Lending Capacity

Press Release No. 09/310
September 18, 2009

The Executive Board of the International Monetary Fund (IMF) today approved gold sales in a volume strictly limited to 403.3 metric tons, with these sales to be conducted under modalities that safeguard against disruption of the gold market. This decision is a central element of the new income model for the IMF that was endorsed by the Executive Board in April 2008 and will also increase the Fund’s resources for lending to low-income countries under a strategy endorsed by the Board in July 2009 (see Press Releases No. 08/74 and No. 09/268). The new income model builds on the January 2007 recommendations of the Committee of Eminent Persons to Study the Sustainable Long-Term Financing of the IMF that was chaired by Andrew Crockett (see Press Release No. 07/18).

“I am delighted that the Executive Board has given its overwhelming backing to a strictly limited sale of Fund gold to put the financing of the IMF on a sound long-term footing, and enable us to step up much-needed concessional lending to the poorest countries,” Managing Director Mr. Dominique Strauss-Kahn stated. “These sales will be conducted in a responsible and transparent manner that avoids disruption of the gold market. Most importantly, the sales are strictly limited to 403.3 metric tons, which is one-eighth of the Fund’s total holdings, so the IMF will continue to hold a relatively large amount of its assets in gold.”

The new income model is designed to provide the Fund with more diverse income sources that are better aligned with the variety of functions performed by the Fund, with a central component being the funding of an endowment with the profits from these limited gold sales. Resources linked to the gold sales will also be used indirectly to increase the Fund’s capacity to provide concessional loans to low-income countries (see Press Release No. 09/268).

In accordance with the priority of avoiding disruption of the gold market, the Executive Board adopted modalities for the gold sales consistent with guidelines it had earlier established (see Factsheet on Gold in the IMF and Gold Sales—Frequently Asked Questions). First, the Fund would stand ready to sell gold directly to central banks or other official sector holders if there were to be interest from such holders. Such transactions would redistribute official gold holdings without changing total official holdings. Under the Fund’s Articles of Agreement, all gold sales must be conducted at market prices, including direct sales to official holders.

Second, the gold sales could be conducted on-market in a phased manner over time, following the approach adopted successfully by the central banks participating in the Central Bank Gold Agreement. Participants in the recently renewed agreement announced ceilings on sales of 400 tons annually, and 2,000 tons in total during the five years starting on 27 September 2009, and noted that the Fund’s sales can be accommodated under these ceilings. Hence, on-market gold sales by the Fund will not add to the announced volume of official sales.

As one of the elements of transparency, the Fund will inform markets before any on-market sales commence. In addition, the Fund will report regularly to the public on the progress with the gold sales.

Useful links:

Gold Sales—Frequently Asked Questions:
http://www.imf.org/external/np/exr/faq/goldfaqs.htm

Factsheet: Gold in the IMF:
http://www.imf.org/external/np/exr/facts/gold.htm

IMF Survey: Board Backs Plan to Adopt New Income Model for IMF:
http://www.imf.org/external/pubs/ft/survey/so/2008/NEW040708A.htm

Factsheet: IMF Support For Low-Income Countries:
http://www.imf.org/external/np/exr/facts/poor.htm

Central Bank Gold Agreement–Joint Statement on Gold:
http://www.ecb.int/press/pr/date/2009/html/pr090807.en.html

IMF Statement on the Renewal of the Central Bank Gold Sales Agreement:
http://www.imf.org/external/np/sec/pr/2009/pr09280.htm

chiff's picture
chiff
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Re: IMF to sell 400 tons of Gold

One has to wonder how much of that gold will go to Barrick.   There is simply no way  Barrick can cover their gold hedges on the open market without driving up the price beyond the 1033 level setting off a self feeding TA rally to 1300.  Announce an IMF gold sale driving down the POG while Barrick covers their hedges.  Perhaps the IMF sells gold directly to Barrick.  Barrick sends physical gold to the Comex to satisfy some of the hedges and prevents a Comex default.  

npwebb's picture
npwebb
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Joined: Mar 25 2009
Posts: 111
Re: IMF to sell 400 tons of Gold

Well the IMF has stated that they intend on selling at "market prices".

If memory serves me, Barrick's move antipates a future spot price of 1,300.00 so any purchase bellow that is a win.

China's move is of far more interest to me.

The eagerness to buy gold will be indicative of what they predict for the dollar.

If they pass on the 403 tons, that means they expect that they will be able to support the dollar for sufficient time to get out of dollar denominated investments without suffering significant losses.

If on the other hand they jump on this opportunity at market prices, it may be a signal that they expect the dollar to grow weaker in the near future.

Since they hold a lot of the cards ($2 T in foriegn reserves and major UST buyer/holder) their actions speak volumes.

That's my take at least, for what ever it is worth.

wstrub's picture
wstrub
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Posts: 5
Re: IMF to sell 400 tons of Gold

Maybe China has already used most of their bonds and bills as collateral to purchase the raw materials they need.   Typically, you can borrow up to 98% against these instruments and maybe these purchases are already up in value.  Any money manager worth their salt would not just hold to maturity any of these...........especially when the returns are negative.  The markets are very much like spider webs, more complex and difficult to manouever than they appear.

Whatever the cost, China needs these young men (I say men because of the skewed population) working or they will have civil unrest.

DrKrbyLuv's picture
DrKrbyLuv
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Joined: Aug 10 2008
Posts: 1995
Re: IMF to sell 400 tons of Gold

China may be playing a bigger game.  They've already threatened to allow their traders to default on manipulated commodity derivatives.  It would not surprise me if China buys the lions share of the IMF gold, in tacit agreements - if it is really sold. 

According to the World Gold Council, the annual average global supply of gold is around 4,000 metric tonnes.  This includes mined, scrap and annual central bank sales.  So, we're looking at around 10% of the annual supply.  China has already advised their citizens to buy gold and silver while the government simultaneously competes in the price market.

So, in a way, lower gold prices benefit the central banks (they own the IMF) and China's government.  The problem for the western banking cartel, is that eventually gold prices may be cut loose which would make dollar investments look shaky compared to PMs (the flight from the dollar).

Larry 

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