IMF gold sales already discounted, but still a blow for gold
By ANDREW CLEARY
The proposed sale of gold by the IMF to help fund its heavily indebted poor countries (HIPC) programme of debt write-offs has already been taken into account by the market, most analysts questioned by Barney agreed, although dangers are seen by some.
Analysts from two investment houses said the price had already taken the news - which has been brewing for two years now - into account.
BoE gold analyst, Piet Stoltz, said the price may drop one or two dollars over IMF sales news, but that "they [the IMF] will do it responsibly" by selling over a few years. Particularly, Stoltz pointed out, as 10 of the proposed 41 beneficiaries are gold producing countries.
The proposed sale is for between five and ten million ounces (150 to 300 tons). Annual new mine supply is about 2 500 tons, so if the IMF sells over several years, as IMF managing director Michel Camdessus has suggested will be the case, the extra supply will be relatively small.
But Rene Hochreiter from stock brokers Barnard Jacobs Mellet said he felt the price may be affected when the IMF begins the sales. Hochreiter said the benefits of a once-off debt write-off for gold producing nations could be counterbalanced by negative spin-offs for the gold industry.
Framing the potential harm to SA's economy, Hochreiter said that a drop in the gold price to $260 could, in the worst case, lead to work-force reductions of 10% in the gold mining industry - or 30 000 workers. Considering that each worker has seven direct family dependants, Hochreiter said, a lot of people could be affected.
George Milling-Stanley, Manager, Gold Market Analysis, World Gold Council, recently warned of the dangers of the IMF's proposed plan.
In congressional testimony given on April 21, he said: "It would be a cruel irony if the assistance that is being offered to the world's poorest countries in fact did further damage to these already troubled economies and deterred investment in gold mining which is potentially of enormous benefit to these nations."
A further danger, he said, "lies in the signal it would send. It would be perceived as a powerful indication that the official sector around the world had finally renounced its belief in gold's role as a monetary asset.
"Such a sale is likely to be seen as the thin end of the wedge and the market would assume that further disposals both by the IMF and central banks around the world would inevitably follow. There can be no doubt the price would fall significantly."
Whether at the hands of the IMF or not, indications are that the gold price will fall this year, as it has done since 1996. The latest annual gold survey conducted by Gold Fields Mineral Services, released this month and held in high regard by the industry, put the price in a band from $265 to $290 for this year. At present, gold fetches $283 an ounce.
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