body { margin-top: 4px; margin-left: 2px; margin-right: 2px; margin-bottom: 4px; } p { font-size : 10pt; font-family : Arial; margin-top:0px; margin-bottom:0px; } pre { font-size : 8pt; font-family : “Courier New”, Courier, monospace; margin-top:0px; margin-bottom:0px; }LONDON (Dow Jones)–Gold prices tumbled by 3.5% Thursday after the G20 leaders’ statement said that gold sales from the International Monetary Fund could be used to fund development programs, but the IMF later said this refers to sales already under discussion.
At the conclusion of the G20 summit U.K. Prime Minister Gordon Brown said the summit agreed to “use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries.”
IMF Managing Director Dominique Strauss-Kahn said the sales refer to the already announced 403.3 tons being discussed.
“The gold of the world is being used to help the poorest of the world,” Brown said, adding the aim is to increase IMF resources by $1.1 trillion.
The 403.3 metric tons of gold is worth about $11 billion and was initially proposed to shore up the organization’s finances. The market reacted to Brown’s comments bearishly, initially unsure whether the proposal was for further sales. Prices fell as much as 3.5% Thursday to $894.05 a troy ounce as of 1705 GMT.
The IMF has 3,217.30 metric tons of gold reserves, making it the world’s third largest official holder of gold behind Germany and the U.S.
Like the U.S. and the Bank for International Settlements, the IMF adheres on an informal basis to the Central Bank Gold Agreement, a pact between 17 European central banks to sell no more than an agreed 500 tons of gold between them each year. The current five-year agreement ends Sept. 26. Before any IMF sale happens, 85% of shareholders need to approve the proposal. Since the U.S. has 17% of the votes, the U.S. has a de facto veto over the proposal.
There are very strict rules over how gold would be sold by the IMF – on its Web site, it says approval to sell gold would be granted only if the sale could be conducted in a way to minimize disruption to the gold market.
Previous discussions to sell 403.3 tons of gold were mostly accepted by market participants including producers and had been factored into prices, said Philip Klapwijk, head of U.K.-based GFMS Metals Consulting.
Klapwijk said sales could be absorbed by other central banks seeking to diversify their U.S. dollar foreign exchange holdings, therefore buffering price weakness resulting in any IMF sales.
