Obama Administration Pushes IMF Gold Sales Through House


"If there is no renewal of the CBGA, that would send a tremendously bullish signal to the gold price. . ."

The Obama administration has pushed a bill through the House approving $106 billion in supplemental funding, primarily for Iraq and Afghanistan 'security' efforts; but attached to it was an expanded credit facility for the International Monetary Fund (IMF) of a massive $108 billion, which included an agreement to allow U.S. members of the IMF Board to agree the proposed $13 billion sale of 400 tons of IMF gold.

In theory the U.S. approval of the IMF gold sale, which still has to pass through the Senate would be the final hurdle in the gold sale actually going ahead. The gold market has largely discounted the IMF gold sale already; and the IMF has said it will dispose of its gold in an orderly manner through a system, such as the Central Bank Gold Agreement (CBGA), which limits sales volumes in a given year. However, the current CBGA runs out in September and there has been no announcement yet of a renewal.

In their April Fortis Bank metals monthly, the London-based VM Group commented that "There are some good arguments against a CBGA renewal. The original 1999 Agreement arose from a structural weakness in the gold market. Then, a class of investors (the Central Banks) believed they were massively overweight in gold and wanted to sell; the Central Banks collaborated on a selling program to drip-feed gold onto a market that was already very weak. Those conditions are arguably no longer relevant.

"If there is no renewal of the CBGA, that would send a tremendously bullish signal to the gold price, at a time today when there are many more actors on the buy-side (such as private investors) and an obviously slowing interest to sell."

Fundamentals don't necessarily look good for gold at the moment, but the gold market is notable for ignoring fundamentals in the short term. It has been retaining its price levels reasonably well in the face of low jewelry demand and a resurgent dollaróboth normally very adverse factors. Investment demand seems to be stable. People are still nervous. Gold still offers a degree of wealth protection that most other markets do not.

Related Articles

Get Our Streetwise Reports Newsletter Free

A valid email address is required to subscribe