Under Pressure

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Gold analysts are buzzing and many investors are spooked about whether the International Monetary Fund (IMF) will decide to sell as many as 400 metric tons of its gold reserves.

Gold analysts are buzzing and many investors are spooked about whether the International Monetary Fund (IMF) will decide to sell as many as 400 metric tons of its gold reserves.

The global financial institution is under pressure to do something about its cash flow problems and ballooning deficits. A blue ribbon panel recently recommended that the IMF sell gold reserves as a partial solution to its fiscal distress.

Adrian Van Eck, the author of Van Eck’s Precious Metals and Oil Hotline takes the long view on all the fuss. “During the past decade or so, we have been repeatedly forced to deal with silly stories like this regarding possible sales of IMF gold. Usually, such stories come out just as gold is breaking out above near-term price resistance.” Van Eck insists, “There is no story here.” Even if IMF gold sales did take place, “the supply of gold offered on the global market by central banks would remain similar to what we have seen in recent years and would be uniform and restricted.” He offers some tongue-in-cheek advice to anyone who tells you to dump your gold investments because of IMF gold sales: “…run for the hills (to get away from their bad advice).”

Julian Phillips of GoldForecaster.com does not regard the sale as a sure thing. “This is one of several proposals put forward by a committee of carefully selected eminent persons who have now issued a report, attempting to provide solutions to the I.M.F. as to how to solve the cash flow problems…In our opinion none of these figures, whilst highly respectable, have the power to influence the diverse national Central Banks who actually own the I.M.F. gold. The Executive Officials of the I.M.F. cannot act independently of the Member states comprising the I.M.F.”

Doug Casey, of Doug Casey’s International Speculator, makes it clear that the proposed IMF sales represent “much ado about nothing other than perhaps creating a buying opportunity, that is.”

In a special report on the subject featured in Doug Casey’s International Speculator, Doug Hornig, senior editor for Casey Research, explains that the idea of gold sales has often come up in the past but has not succeeded. He attributes the failure to U.S. opposition “or because of opposition among the more general membership, which includes many gold-producing nations that have an interest in keeping a floor under prices.” He expects stiff opposition from the U.S. this time around too.

But what if the sale actually does take place? Hornig contends that many feel the IMF’s actions will have a negligible effect on gold. He doesn’t rule out “a short-term downdraught…some holders of gold, maybe a significant number, can be expected to sell into the news.” But he believes that even a large influx of the physical metal onto the market is “certain to be absorbed” by countries such as China, Russia and nations of the Middle East “itching to add to their reserves.”

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