Congress Paves Way for IMF Gold Sales, Unlikely to Dent Market


". . .no cause for concern that the market is about to become awash with official sector metal"

The gold market feels that news late last week that U.S. Congress passed the Military Supplemental Bill—thereby finalizing the process allowing the International Monetary Fund to sell 403.3 mt of gold—has already been factored in to the price. Still, some believe that the news will only stoke dark clouds already hanging over the metal.

"It seems like there is a commodity selloff in general today," one trader told Platts Monday. "For gold, the writing has been on the wall after the move to $985/oz. There was no support on the way back down, the market is very long, we know this, so IMF selling etc., just adds to the downside pressure."

Congress has stipulated that these sales need to be handled according to the guidelines agreed by the IMF's executive board last year in order to avoid disrupting the gold market, and the IMF has said that its sales should be coordinated with current and future Central Bank Gold Agreements. The current five-year CBGA (which has a 500-mt annual quota limit) is due for renewal on September 27, the analyst noted.

A second trader told Platts that he believes that the news has already been factored in to the price and that Monday's downturn had nothing to do with the news.

Meanwhile, VTB analyst Andrey Kryuchenkov agreed, telling Platts: "I would certainly say that the possible sales has been factored in."

Societe Generale analyst David Wilson added in the research note that the IMF has stated that the executive board will "consider the 'modalities' for the gold sales during the summer and could take a decision to sell gold at this time."

"We could perhaps, therefore, expect a steady disposal at a rate of up to 150-200 mt/year over a two-three year period, or it is entirely possible, given the changing stance of a number of central banks (notably Russia and China), that there will be an off market direct transaction," the note added.

Either way, with other central banks not fulfilling their quotas over the current CBGA and unlikely to do so in the next renewal there should be no cause for concern that the market is about to become awash with official sector metal, Wilson concluded.

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