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Gold should shake off any sales by IMF

Section: Daily Dispatches

By Frank Tang
Tuesday, April 8, 2008

NEW YORK -- The International Monetary Fund's plan to sell part of its gold should not affect bullion prices since any possible sales by the institution will be within an existing central bank gold agreement.

Booming gold investment demand as well as possible opposition by Congress, whose approval is needed before the IMF could unload its gold, should also mitigate any downward pressure on prices.

IMF's move will further increase the amount of gold owned by private investors instead of central banks, which allows market forces and not governments to set the price of gold, commodity experts said.

The IMF agreed on Monday to create an endowment with the sale of 403.3 metric tons of the fund's 3,217 metric tons of gold stocks in a move to revamp its income model.

"We certainly have plenty of investment demand that can absorb (IMF's gold) in the market. Also, of course, it's not clear that there will be any sales anyway as it requires U.S. congressional approval," said James Steel, metals analyst with HSBC in New York.

IMF's proposal was still to be approved by the IMF's 185 member countries and the Congress before any gold sales could begin.

On Tuesday, active U.S. gold futures for June delivery ended 1 percent lower at $918 an ounce and spot gold traded at $915.

Steel, however, said that gold's decline on Tuesday was more because of speculation that news from a G7 meeting later this week would ease credit worries, denting gold's appeal as a safe haven investment in financial turmoil.

Bullion hit an all-time high of $1,030.80 on March 17.

... No additional gold sales

George Gero, vice president of RBC Capital Markets Global Futures in New York, said that the IMF agreement had taken a toll on buying sentiment among gold bulls.

"So, the market will probably continue reacting to some profit taking and sell-stops after the move up that we had. As soon as it stabilizes, I think you will probably see some bargain hunters come back in," Gero said.

Gero said that the IMF proposal might not affect the market quickly because the institution would sell gold within the framework of the existing Central Bank Gold Agreement (CBGA), which allows for the sale of about 500 tons of gold a year.

George Milling-Stanley, manager of investment and market intelligence of the industry-sponsored World Gold Council, said that IMF's move should not affect gold at all as there would be no net addition to the official-sector gold sales that the market had already expected.

"If there will be any sales, they would do it gradually, and they will do it within the context of the existing CBGA. There's not going to be any increase in the supply from the official sector whatsoever," said Milling-Stanley, who has been working closely with the IMF and central banks.

In other words, the IMF would only sell gold according to the 500-ton allowance provided by the CBGA, he said.

Milling-Stanley said that IMF's strict proposal, if it was approved, should kill any speculation that the fund would further unload any of its remaining 2,800 tons of gold.

European central banks have so far sold 191 tons of gold in the fourth year of the 5-year pact which started on Sept 27.

"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.

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