Congress to Approve IMF Gold Sale This Week

This week the Supplemental Budget Appropriations Bill goes to committee to reconcile the differences between the House and Senate. While most eyes will be focused on the political horse trading that will surely be a part of the process, we will be focused on Title XIII of the bill.

Title XIII, Section 66 is titled, Approval to Sell a Limited Amount of the Fund’s Gold. This section appears on page 105 of a 110 page document and is the authority the IMF has been waiting for since the G20 meeting in April. We noted then as now that these gold sales should have no impact on the gold market for several reasons.

The amount of gold for the proposed sale is 12.97 million ounces (403.3 metric tons). This gold was acquired after the second amendment to the Fund’s Articles of Agreement in April 1978. The Crockett Commission was formed to advise the IMF on the sale of this gold. The recommendation was to sell the gold in a manner that would not disrupt the gold market. It has come to be understood that any sales by the IMF would be subject to the Central Bank Gold Agreement (CBGA), which the IMF is not a signatory.

The CBGA limits gold sales by central banks to 400 tons per year. If the IMF were to sell all the gold in one year it would “crowd out” the other central banks. This is an extraordinarily unlikely scenario.

Hypothetically, if the IMF decided to snub its nose at the CBGA and dump its gold on the market, there still would be virtually no impact. The London Bullion Market is where virtually all central bank and official gold trading takes place. In April, the London Bullion Market transferred an average of 20.5 million ounces of gold everyday. So even if Mr. Strauss-Kahn was feeling a bit irreverent, he could accomplish the sale of 12.97 million ounces in one day.

We see the more likely scenario developing in which China purchases the gold directly from the IMF. Since there is a limit on yearly gold sales it would take a long term forward contract to be executed. We do not think it is purely coincidence that Treasury Secy. Geitner is in China during the same week the Congress is set to give approval to IMF gold sales.

Finally, a sale to China may upset India and several of the Gulf States as they all have expressed interest in purchasing the gold. If this occurs, nothing could be more bullish for the price of gold. Any protest would show just how motivated these governments are to purchase gold. Once the sale is complete, regardless of the buyer or buyers, the gold would then be transferred from weak hands to strong.

Disclosure: I am long GDX and GLD options.

Comments

[DONE_SONZ]

"the gold would then be transferred from weak hands to strong".Go ahead IMF.Back up the trucks China.

2009 Jun 02 07:50 AM

[yellowhoard]

It's The Big USA Garage Sale!

Never before have so many national treasures been sold at such insanely low prices!

Call now and get missile codes at never before seen prices!

Buy one coal mine, get the second one FREE!

Buy Congress and we'll throw in a Supreme Court justice AT NO ADDITIONAL CHARGE!

Everything has got to go!

And, don't forget, buy $500,000,000,000 in US Treasuries and we'll ship solid gold to you at rediculously suppressed prices!

2009 Jun 02 08:11 AM

[doubleguns]

Can we take the missile codes for a test run.

I have a few places I'd like to test drive one too.

2009 Jun 02 08:24 AM

[doubleguns]

Sorry for the multiple posts guys, I thought I fixed this last week. Have to reload mouse!!!!

2009 Jun 02 08:25 AM

[Market Sniper]

One quick question. Could this gold be some of the gold "lent" to the IMF by the US Fed that was "lent" to them by he American People way back when? Otherwise, WHY would this IMF sale need US Congressional approval? Here is ANOTHER interesing little bit of information tucked away in an obscure governmnt report. Take a look. this also needs to be checked out! www.financialsense.com...

2009 Jun 02 08:37 AM

[fireball]

seems like a coinkydink. gold threatening to bust loose and now a big sale. should we dump our p.m.s before the big sale? believe i'll keep mine and take advantage of any price drops.

2009 Jun 02 08:56 AM

[Vuke]

It's all a pack of deceptive lies. Does anyone really believe the IMF "owns" gold or is really "selling" it? Don't they have better things to do with their time? Collapsing economies and so on?

It's a deceptive display of mirages and mirrors meant to support fiat currencies and perhaps settle some underlying discontent. In fact, there's even speculation the gold will end up back in Fort Knox, ready, presumably, to be unveiled at an appropriate time.

The Theory of Rational Expectations is all about managing your expectation, not theirs. Now, just get back to work and pay your taxes on time.

2009 Jun 02 09:02 AM

[FxHedger]

Could someone please tell me why the IMF is so desperate to sell its gold when Everyone (majority of SA articles, banks, miners, hedge funds, pundits, economists, etc. put future expectations at 1200, 1500, 2000, 3500, 9000, depending on who you ask) thinks it has to move up from here?

2009 Jun 02 09:20 AM

[Vuke]

Perhaps because they don't want to see it go there?


On Jun 02 09:20 AM FxHedger wrote:

> Could someone please tell me why the IMF is so desperate to sell
> its gold when Everyone (majority of SA articles, banks, miners, hedge
> funds, pundits, economists, etc. put future expectations at 1200,
> 1500, 2000, 3500, 9000, depending on who you ask) thinks it has to
> move up from here?

2009 Jun 02 09:26 AM

[Market Sniper]

Same reason Gordie Brown sold out the British gold at the bottom below $300. Now lookie here. He is the PM.


On Jun 02 09:20 AM FxHedger wrote:

> Could someone please tell me why the IMF is so desperate to sell
> its gold when Everyone (majority of SA articles, banks, miners, hedge
> funds, pundits, economists, etc. put future expectations at 1200,
> 1500, 2000, 3500, 9000, depending on who you ask) thinks it has to
> move up from here?

2009 Jun 02 09:26 AM

[yellowhoard]

I never said we were expensive whores.

2009 Jun 02 10:10 AM

[Market Sniper]

Central bank gold sales are actually very bullish for gold. Has been in the past. Do not expect that to change this time either.

2009 Jun 02 10:18 AM

[Mad Hedge Fund Trader]

If the government is selling it must mean it isI can’t think of a better reason to keep a core long term position in gold than the prospect of the US losing its triple “A” rating. The chatter about this yesterday took the barbaric relic up to a three month high of $980, a mere $50 from an all time high. Quite honestly, I never understood why the American rating has stayed this high for this long. If any other entity had increased their debt from $5 trillion to $11 trillion over the last eight years, then boosted it to $13 trillion over the last three months, their rating would have been slashed ages ago. Like to the level of Zimbabwe. Is it any surprise that gold demand soared by 38% in Q1, according to the World Gold Council? And now the Russian Central Bank is allowing other banks there to pledge gold as collateral. Keep your gold position so you don’t miss the inevitable gaps up, as well as miners, like Barrick Gold (ABX).
going up.

2009 Jun 02 10:18 AM

[DONE_SONZ]

Too help the poor is what they say.Maybe changing of hands is in the cards.Regardless,China's hands are wide open.

On Jun 02 09:20 AM FxHedger wrote:

> Could someone please tell me why the IMF is so desperate to sell
> its gold when Everyone (majority of SA articles, banks, miners, hedge
> funds, pundits, economists, etc. put future expectations at 1200,
> 1500, 2000, 3500, 9000, depending on who you ask) thinks it has to
> move up from here?

2009 Jun 02 10:21 AM

[Market Sniper]

Here is some thoughts by "Another"...this is an old thread. "Another" supposedly is a very highly placed individual somewhere in the Middle East. He makes the case that the deal is cheap gold for cheap oil. I find this absolutely fascinating and helps to explain a lot. Seems Gordie Brown may have taken the hit for the home team when he dumped Britain's gold. Well worth a perusal. Do not know the veracity. www.usagold.com/goldtr...


On Jun 02 09:26 AM Vuke wrote:

> Perhaps because they don't want to see it go there?

2009 Jun 02 10:35 AM

[Clive Corcoran]

Market Sniper is right to remind us of Gordon Brown's market timing acumen when he unloaded most of the UK's gold reserves at the bottom of the market - the man really has been spectacularly incompetent.

More often than not the path being taken now by the US reminds me of the path previously taken by the UK during the 1970's
Does anyone remember the 1973 album Selling England by the Pound

2009 Jun 02 10:36 AM

[History Buff 24/7]

They're selling 400 tons? Really?

If it's physical gold can I get dibs on it before the Chinese, or the Indians, or whomever?

2009 Jun 02 10:46 AM

[cihat]

Why...
Do you think G20 decided to sell IMF gold? instead of giving poor countries couple of Billion US dollars printed with fresh ink. This money is lot less than allocated to GM.

My guess is, they are all scared... as they all decided to print bills that their only real enemy is gold and commodities which are real and will show the true face of inflation they are creating.... Just look at USD vs. Euro parity is now 1.43,
But when Europe starts printing also what will happen? Euro will go down or USD will go up. In the end they will end up as
both printed a lot of paper money with no change in parity...
Their Only enemy is gold as they can't print gold and it will show the real devaluation of all their currencies...
So 20 countries which normally cannot agree on anything, agreed on selling gold...But now with a lot of Central Bank buyers... is not a good sign that they looked for...Their aim was to scare people to dump their gold (physical or digital) and lower the price of gold....
I am not helping them I am helping myself and buying as much as I can since it was 750 USD an ounce and tonight possibly will brake 1000 USD...

2009 Jun 02 11:10 AM

[GoldMoney]

The IMF gold came from latin America as part of a bailout package in the 90s. The IMF is selling it now so that the banksters can buy it and stash it away ahead of the crack-up boom that is brewing. They want the gold out of any public domain where citizens may lay claim to it. Might be a good opportunity to back up the truck if they drive the price down.

2009 Jun 02 11:45 AM

[DONE_SONZ]

The price will move up if China is receiving the goods.


On Jun 02 11:45 AM GoldMoney wrote:

> The IMF gold came from latin America as part of a bailout package
> in the 90s. The IMF is selling it now so that the banksters can buy
> it and stash it away ahead of the crack-up boom that is brewing.
> They want the gold out of any public domain where citizens may lay
> claim to it. Might be a good opportunity to back up the truck if
> they drive the price down.

2009 Jun 02 01:19 PM