IMF to sell 12.5% of gold stake in efficiency drive

[DocDon]

Last update: 4:45 a.m. EDT April 8, 2008

TEL AVIV -- The International Monetary Fund said it would sell more than 14.2 million ounces of gold, currently valued at more than $13 billion, and cut substantial costs as part of an efficiency drive.

The agency, with 185 member countries, aims to promote monetary cooperation, foster economic growth and employment, and provide temporary help to countries that have problems with their balance of payments.

In a statement on Monday, Managing Director Dominique Strauss-Kahn said the IMF had made "difficult but necessary choices" to close an income shortfall and make the agency more efficient through a "new and sustainable income and expenditure framework."

With the changes, the IMF's income model would be based largely on generating funds from various sources rather than relying on lending, the agency said.

The restructuring also includes broadening the IMF's investment authority to help it boost returns. Safeguards would be put in place to ensure that the IMF's new investments don't create conflicts of interest, the IMF said.

And the new model includes $100 million of spending cuts over the next three years. The Associated Press reported that the reductions would include as many as 100 job cuts.

Reuters reported that the IMF holds about 113.5 million ounces of gold, so the gold to be sold amounts to 12.5% of its holdings. The metal would be sold "in a transparent manner with strong safeguards" to avoid disrupting the market, the IMF said.

The new model "could generate an additional $300 million in income within a few years," the IMF said.

The proposal faces at least two key hurdles. One is that the U.S. Congress must approve the IMF's proposal to sell gold. And most member countries also will have to enact legislation to expand the IMF's investment authority.

Robert Daniel is MarketWatch's Middle East bureau chief, based in Tel Aviv.

[AISLE4]

If they get the approval, that gold will never see the open market. It'll be grabbed as quick as the exchange can be made by Asian banks wanting to get rid of US dollars. A look at history shows that each time the IMF unloads a significant amount of gold the spot price for gold increases.

[DocDon]

The fear (perhaps unfounded) is that since they are not going through central banks, the spot will plummet (temporarily, thereby strengthening the dollar, temporarily).

The hedgers will run to oil, taking it to $200 p/b, giving us $4.00+ gas for the summer. Then gold will hit $2K.

If you have any links to that historic data, please pm me with 'em - I'd like to read up on it...

[AISLE4]

I recently read an article on this exact topic - the history of the IMF selling gold and the resulting price action for spot. I read so many articles from so many different sources that I can't recall exactly where the article was posted. It might have been www.321gold.com. I don't think the author was overly focused on the immediate result of the sale. His point of view was more intermediate to long-term. The scenario you mention seems plausible.

[AISLE4]

An article I came across today about IMF gold selling and its effect on the gold market.

http://www.kitco.com/ind/AuthenticMoney/apr142008.html

[DocDon]

Good read. Thanks!

One of the biggest fears was the rumor that they were going to simply flood the market, circumventing the central banks. This does not now seem to be the case...

I can handle 3-4 years.