sale by the IMF of 400 tonnes of its gold holdings in order to mitigate operating losses, which IMF Managing Director Mr. Dominique Strauss-Kahn has recently suggested could amount to $400 million per annum by 2010 if the rationalisation plan is not approved.
The proposal suggests that the proceeds of the gold sales are to set up an endowment that will then produce income for the Fund. The IMF holds 3,216 tonnes of gold, currently worth almost $100 billion with gold trading in excess of $950/ ounce.
The 400 tonnes of gold nominated for this sale was described by Mr. Crockett, on the presentation of the final report, as corresponding to the gold that was sold and re-purchased in an off-market transaction “six or seven years ago, and which is, for legal reasons, in a slightly different category from the rest of the Fund’s gold”. He went onto state that the sale would generate income of about SDR4.4 billion, or $6.6 billion, at a prudent gold...
As you know I would like to see the electricity cut for lack of payment in the IMF offices. But they still have gold to seel and pay theior bills :-)
Full article below
The IMF, Gold and Refunding
Mon, Mar 31 2008, 13:07 GMT
by GFMS Team
GFMS
In January 2007 the Eminent Persons Committee, which had been commissioned to study the financial position of the IMF, reported its findings and made its initial recommendations. At the end of January 2008 the Committee, chaired by Mr. Andrew Crockett, the former General Manager of the Bank for International Settlements, made its final report. The proposals included the sale by the IMF of 400 tonnes of its gold holdings in order to mitigate operating losses, which IMF Managing Director Mr. Dominique Strauss-Kahn has recently suggested could amount to $400 million per annum by 2010 if the rationalisation plan is not approved.
The proposal suggests that the proceeds of the gold sales are to set up an endowment that will then produce income for the Fund. The IMF holds 3,216 tonnes of gold, currently worth almost $100 billion with gold trading in excess of $950/ ounce.
The 400 tonnes of gold nominated for this sale was described by Mr. Crockett, on the presentation of the final report, as corresponding to the gold that was sold and re-purchased in an off-market transaction “six or seven years ago, and which is, for legal reasons, in a slightly different category from the rest of the Fund’s gold”. He went onto state that the sale would generate income of about SDR4.4 billion, or $6.6 billion, at a prudent gold price level of $500/ounce. Gold is held on the IMF balance sheet at SDR5.9 billion on the basis of historical cost. In mid-March 2008 this SDR rate is equivalent to $9.6 billion.
Mr. Crockett’s statement underlined the proposed nature of the sales, thus: “We have further proposed that the undertaking - sale of gold should - be qualified in important ways that limit its impact on the gold market. In the first instance, the amount should be limited to the 400 tons I mentioned, without envisaging any additional sales”.
“Secondly, the sale should take place within the existing Central Bank Gold Agreement, that is to say it would not be additional to sales already programmed by central banks, but would be accommodated by reductions in the amounts of gold that the central banks might sell under the Central Bank Gold Agreement”.
“And thirdly, we have emphasized that the sale should be undertaken in a very careful way in terms of their periodicity, amounts and manner of sale such as not to disturb the market”.
The reference to the sale and repurchase transaction goes back to 1999 and 2000 when the IMF had been under pressure not to go through with its planned gold sales programme in aid of the Highly Indebted Poor Countries (HIPCs). The IMF had proposed in June 1999 that it would sell 10 million ounces or 311 tonnes of gold in order to assist debt relief for these countries. After some lobbying and associated reconsideration, the IMF shelved these plans in favour of revaluation of reserves. There were two published transactions, involving Mexico and Brazil. The IMF sold gold to Brazil and Mexico at the prevailing market prices and the profits were placed in a special account invested for the benefit of the HIPC Initiative. In the second step, the IMF immediately accepted back, at the same market price, the same amount of gold from the member in settlement of that member’s financial obligations to the IMF. While the effect on the gold holdings was neutral, the gold involved was then entered onto the IMF’s books at the prevailing market price rather than the official price of SDR35/ounce. In accordance with the IMF Articles, the equivalent of SDR35/ounce from the proceeds of the sales was retained in the General Resources Account. The increase in the value of the gold held on the balance sheet was then used effectively to offset the liabilities of Mexico and Brazil to the IMF.
This is the gold to which Mr. Crockett is referring. The proposal met general approval from the G-7 Finance Ministers at their early February summit, while the US Treasury has also endorsed the plan, with the Under Secretary for International Affairs noting that the sale is part of the “very credible” proposals for the Fund’s new financial model. This marks a sea-change in the US’ Treasury’s view about gold sales, with the possible inference that, with fiat currencies under pressure, notably the dollar, then gold is coming into play as an asset of last resort.
Any sales of gold from the IMF needs an 85% majority in order to pass the proposition and the US’ voting power stands at 17.09% of total, giving the US a de facto veto. The matter now has to pass through Congress.
price level of $500/ounce. Gold is held on the IMF balance |
