IMF may start gold sales in Q1 – VM
miningweekly.com
By: Creamer Media Reporter
20th November 2009
TORONTO (miningweekly.com) – Unless another central bank steps in to buy what remains of the gold earmarked for sale by the International Monetary Fund (IMF), the fund will likely begin on-market gold sales in the first quarter of 2010, suggests VM Group analyst Matthew Turner.
However, after India surprised the market with its purchase of 200 t of the yellow metal from the IMF, it is still possible that the fund could find another official sector buyer for the remaining 203,3 t it plans to sell, he commented in VM Group's Yellow Book, a twice-yearly report on the gold market, published with BNP Paribas and Fortis.
“The most obvious buyer remains China, but few saw India coming, and so any country with large foreign exchange reserves could be seen as a potential buyer,” Turner comments.
“Obviously, the Reserve Bank of India purchase has raised the chance of a similar move by another central bank.”
If the IMF does not find an official sector buyer, the fund has said that it will inform the market before sales begin, and that it will provide regular updates.
“In our view, the most likely outcome is that the IMF will begin on-market gold sales in the first quarter of 2010 and will sell regularly each week at an annual rate of 200 t/y, meaning its sales will take about a year,” Turner writes.
If the IMF does go the market route, it will likely be the only major seller under the new Central Bank Gold Agreement, as the signatories have announced only “the tiniest” of gold sales plans.
(Although the IMF is not a signatory to the agreement, the document notes that the “signatories recognise the intention of the IMF to sell 403 t of gold and noted that such sales can be accommodated within the above ceilings”.)
Besides the IMF, the only confirmed seller under the new agreement is Germany, which says it will only be selling a token amount (6,5 t) for the manufacture of gold coins.
The new, or third, CBGA sets the annual ceiling for gold sales by signatories at 400 t, compared with the $500 t/y in the previous agreement.
However, Turner comments that the upper limit can be “rather notional”, as evidenced by the final year of the previous agreement, when VM Group estimates total sales were just 157 t, “far short of the 500 t maximum and by far the smallest annual total sold since the CBGA was first launched in late September 1999.”
In fact, sales were even slower in the last six months of the year, at just 28,4 t, or fewer than five tons a month.
Over the five years of the second CBGA, VM estimates that a total of 1 882 t was sold, 118 t less than under the previous agreement, despite a higher annual limit.
BAD TIMING
Overall, the trend in orchestrated official sector gold sales must be viewed as bullish for the gold price, as long as the lower volumes of sales than in recent years is sustained, Turner says.
“There is a huge irony to all this of course, which is that central bank sellers usually manage to time their sales very poorly, at least in terms of maximising revenues,” he comments.
Both the UK and Swiss central banks sold gold at the bottom of the market in 1999, while the RBI is now buying at what could turn out to be the top, or close to it, of the market.
“That the sales levels we anticipate under CBGA III are likely to be their lowest since the agreement was first established will probably coincide with one of the strongest bull markets for gold in many years speaks volumes about the rationale for such sales.”
“It is always about government fiscal policy, not portfolio management.”
With global economies entering a new, more conservative era of fiscal policy, the witholding of gold by the official sector, apart from the IMF, will likely be a factor that underpins prices in the coming months, “and, quite possibly in the years ahead”, Turner concludes. |
