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Thursday, February 18, 2010

IMF to Begin On-Market Sales of Gold

The International Monetary Fund (IMF) today announced that it will shortly initiate the on-market phase of its gold sales program. This is the second phase of the total sale of 403.3 metric tons approved by the Executive Board in September 2009 (see Press Release No. 09/310). The first phase was set aside exclusively for off-market sales to official holders. A total of 212 metric tons was sold during this phase, comprising sales to the Reserve Bank of India see Press Release No. 09/381), the Bank of Mauritius (see Press Release No. 09/413), and the Central Bank of Sri Lanka (see Press Release No. 09/431).

The total amount remaining to be sold is 191.3 metric tons. In accordance with the priority of avoiding disruption of the gold market, the on-market sales will be conducted in a phased manner over time. This follows the approach adopted successfully by the central banks participating in the Central Bank Gold Agreement. Participants in the agreement have noted that the Fund’s sales can be accommodated under the agreed ceilings of 400 tons annually and 2,000 tons in total during the five years starting on September 27, 2009. The initiation of on-market sales does not preclude further off-market gold sales directly to interested central banks or other official holders. Such sales would reduce the amount of gold to be sold on the market.

The IMF will continue to provide regular updates on progress with the gold sales through its normal reporting channels.

What does this prove gold is over valued? Hardly. What it shows to me is the IMF needs cash or wants gold valuation to remain depressed. Once bag of tricks are exhausted (there is only so much gold you can sell until your out....) gold may rise in value in an out-of-control fashion.

For today, next week, we'll see if this matters. But one thing is for sure, nobody wants gold to appreciate, it helps show under-confidence in printing tons-o-paper. If faith in paper currency is ever shaken, natural resources is the place to be.

1 comment:

  1. The gain in gold today, reaching the 1120 level, was quickly turned back by either the actions of the Central Bank or by the IMF's willingness to short sale its gold holdings...

    This less than a 2% declines off todays highs, is rather encouraging too say the least...

    Perhaps one day, the IMF will need to purchase gold instead of selling its only asset...