Thursday, December 23, 2010

IMF Concludes 403.3 ton Gold sale

The IMF has released a press statement concluding the finalisation of their Gold sales:
The International Monetary Fund (IMF) announced today the conclusion of the limited sales program covering 403.3 metric tons of gold that was approved by the Executive Board in September 2009 (see Press Release No. 09/310).

These sales are a central element of the new income model for the IMF that was endorsed by the Executive Board in April 2008. They will also increase the Fund’s capacity to support low-income countries under a strategy endorsed by the Board in July 2009 (Press Releases No. 08/74 and No. 09/268). The gold sales were conducted under modalities to safeguard against disruption of the gold market. All gold sales were at market prices, including direct sales to official holders.
IMF
The sale of the 403 tons was announced initially in late 2009. Shortly after this, following speculation that China would be a buyer, it was announced that India had bought 200 tons (this was when Gold was around $1050) and in my opinion was an important turning point, providing a base from which Gold has sprung 30%+ over the last 12 months.

Other known buyers of the IMF Gold have been:

* India - 200 tons (Announced November 2009, as mentioned above)
* Mauritius - 2 tons (Announced November 2009)
* Sri Lanka - 10 tons (Announced November 2009)
* Bangladesh - 10 tons (Announced September 2010)

The buyers of the remaining 181 tons have not been announced publicly to my knowledge. Although with Russia continuing to add frequently to their reserves over the last 12 months I would not be surprised to see some having ended up with them.

The sale has not been without it's controversies with some Gold market commentators claiming the sale was a tactic to keep a lid on the Gold price and others claiming that the IMF didn't have any real Gold to sell and that the sales were simply "paper promises".

Eric Sprott of Sprott Asset Management infact offered (although I have my doubts about the ability of Sprott to buy such a large amount) to buy 191 tons of Gold from the IMF provided they could supply the physical product. After the IMF refused the sale Business Insider spoke to the IMF about the reasoning and found they had very specific protocols they were following for the sale, namely that it was only through specific agents they were selling the Gold and only to central banks, sovereign nations, etc.

While some expected the IMF sales to have a heavy impact on the market, I certainly was not one of them given that the IMF sold a lot more (almost 4x the amount of the sale announced in 2009) Gold in the 1970's Gold bull market:
Auctions and "restitution" sales (1976–80). The IMF sold approximately one-third (50 million ounces) of its then-existing gold holdings following an agreement by its member countries to reduce the role of gold in the international monetary system. Half of this amount was sold in restitution to member countries at the then-official price of SDR 35 per ounce; the other half was auctioned to the market to finance the Trust Fund, which supported concessional lending by the IMF to low-income countries.
IMF
The sales in the last Gold bull market didn't seem to have any negative effect on the price appreciation.

With the sale concluded though it now leaves central banks to obtain their Gold from elsewhere which has the potential to add pressure to a market that is already showing signs of physical shortages with retail/intitutional buying alone. In my opinion the conclusion of these sales removes an overhang that has been in place for the last 12 months and when normal market trading resumes early next year I am expecting significant appreciation in the price of Gold.



BB.


Disclosure: Positions held in Gold. Not investment advice. Do your own research.


2 comments:

  1. Hey man, Looking to purchase a very large sum of gold from the IMF or anyone. Can you help? jacobehiller@gmail.com

    ReplyDelete
  2. Hi Jacob, Why not buy futures and simply take delivery:

    http://buying-gold.goldprice.org/2008/10/how-to-buy-gold-and-silver-on-comex.html

    Cheers

    BB.

    ReplyDelete