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IMF finishes big gold reserve sale, ending era

The IMF completed a gold reserve sale it began a year ago, and the impact on gold prices is limited

Reuters, Wednesday 22 Dec 2010
The IMF divests its gold reserves (Photo : Reuters)
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The International Monetary Fund announced on Tuesday the completion of the massive gold reserve sale it began a year ago, likely drawing to a close decades of bullion divestment from the public sector.

The news had little impact on gold prices as the IMF had already said it sold more than 90 percent of the total 403.3 tonnes by the end of October, but it marked an important turning point for the market, which has been lifted this year by the prospect of further buying by global central banks.

Many analysts now expect the public sector -- led by central banks in emerging markets, especially China -- to become net buyers of gold next year as they seek to diversify reserves away from the U.S. dollar and Treasuries.

The IMF gave no further details on its sales, which began in September 2009 and quickly found willing buyers among south Asian central banks, including India, which bought half. Others included Bangladesh, Sri Lanka and Mauritius.

Based on the total 148.6 tonnes the IMF said it had sold in on-market deals by end-October, it would have sold another 33 tonnes or so since then, about in line with its recent pace.

The deals are under the aegis of the Central Bank Gold Agreement, which restricts sales by its signatories to no more than 400 tonnes annually. With banks increasingly reluctant to part with their holdings, however, dealers were quickly wondering whether the IMF might return to the market.

"The anticipation will be to see what the next round of sales is, if any," said Frank McGhee, head precious metals trader, Integrated Brokerage Services LLC in Chicago.

"If the sale is off the market it could add a psychological boost and if they make another announcement about another sales program, it will give the market ideas on where things are."

All gold sales were at market prices, including direct sales to official holders, the IMF said in a statement.

Gold prices have surged over the past decade, recovering from a low of around $250 an ounce in 1999 as the original CBGA agreement was put in place in order to stem the central bank sales that were a major source of supply in the 1990s.

Gains accelerated in late 2008 after the worst of the financial crisis, which burnished bullion's appeal as a reserve asset and a source of security. More recently it has also drawn support from growing concerns over European debt.

Prices edged up late on Tuesday, holding just a tad below their record $1,430 an ounce and headed for a 10th yearly gain, having doubled in just two years as investors pile in.


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