Why IMF gold sales won’t affect the gold price

Excuse our cynicism, but shouldn’t this story be dead already?

The IMF, which has the worlds third largest holdings of gold bullion, has announced yet again plans to sell some of their gold holdings. As we reported before, in our Feb 29th Gold Market Update:

Our belief that the latest International Monetary gold proposal story was more spin than reality is seen in the fact that the IMF said on Thursday that no timetable has been set for the sale of a limited portion – about 12.9 million ounces (403.3 tonnes) – of the IMF’s gold stocks of 103.4 million ounces. The news was not widely reported unlike the previous ‘news’. In a background paper, the IMF said if the gold was sold on the market, as opposed to off-market transactions, the sales would be phased over time to avoid market disruptions, as recommended by an independent panel.

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

What is more interesting here, is not the obvious rehashing of an old story, but the changing spin it is given this time around. Marketwatch reports in a somewhat schizophrenic article entitled “Gold futures drop as IMF announces gold sales”:

Gold for June delivery fell $8.80 to end at $918 an ounce on the New York Mercantile Exchange. “You’re seeing the trade key off of the stronger dollar mainly,” said Zachary Oxman, senior trader at Wisdom Financial.

…but then goes on to quote Ross Norman of FastMarkets Ltd:

“Given that the sales would happen over some years and within the CBGA [Central Bank Gold Agreement], this amount — if approved — would be readily absorbed by the investment and jewelry quarter,”

Reuters are plainly bullish on gold in their analysis:

“It’s not something that’s going to rock the market. I think the market can absorb it. And in the long term, for the market, it’s a healthy development that gold is moving more towards private hands,” said Axel Merk, portfolio manager of Merk Hard Currency Fund in Palo Alto, California, which has $400 million of assets under management, including bullion.

 


For this to even be worth discussion one would have to forget that the US congress will have to vote to allow this deal to go ahead, which seems highly unlikely. As I have stated before:

..it is important to note that there is considerable doubt as to whether this sale will take place. The IMF and Treasury do not decide, rather the U.S. Congress, who control the IMF, and they have been opposed to IMF gold sales in past and may be again. Marc Chandler, currency strategist at Brown Brothers Harriman & Co., said in a research note that he U.S. Congress could block the Treasury’s initiative. “Previously Congress opposed IMF attempts to sell gold in both 1999 and 2005, but McCormick hinted at having Congressional support now.”

Read my full analysis in our Gold Investments Market Update under the title ‘More Proposed IMF Gold Sales’.

Mark O'Byrne

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