When it was learned that the Treasury was to support the sale of 400 tonnes of gold all were surprised…. … We realized that Congress would still have to be asked to approve the sale. When the mist cleared and we saw in sharp focus what lay ahead we realized that much more needed to be done before the sales became a reality.

These are the steps still to be overcome for these sales to take place:

1. The I.M.F. must trim their staff, by 15%. This is not a quick action?
2. The U.S.A. must get the approval of Congress; an approval that was denied them in the past.
3. They must get the approval of 85% of their members and the U.S.A. accounts for 17% of the votes. They must find another 68% of their members in favor.
4. They must organize their sales as below.

Should these obstacles be overcome at some point in the future, the proceeds would then be used to finance an expected income gap in this fiscal year of about U.S.$224m and the balance be placed in a fund from which the income can be used to fund the I.M.F.¡¦s overheads.

What Type of Sales Will These Be?

The Second Amendment to the Articles of Agreement in April 1978 required that the IMF:
When dealing in gold, avoid managing its price or establishing a fixed price.
The IMF may sell gold outright on the basis of prevailing market prices, and may accept gold in the discharge of a member's obligations at an agreed price, based on market prices at the time of acceptance.
The IMF does not have the authority to engage in any other gold transactions¡Xsuch as loans, leases, swaps, or use of gold as collateral¡Xnor does it have the authority to buy gold.
The IMF has a systemic responsibility to avoid causing disruptions to the functioning of the gold market.
Profits from any gold sales should be used whenever feasible to create an investment fund, of which only the income should be used.

How will it achieve this? It is thought that the I.M.F. will only sell to another Central Bank, but we don¡¦t see any such stipulation in their articles, but it is one of their options. In the past they have used the auction method of selling gold [at the highest offered price], but again this is not stipulated in their Articles. They also have the right to choose one or more bidders at this price. The fact that the Central Bank Gold Agreement was mentioned implies that they could sell in the same manner and on the ¡§open¡¨ market. In a background paper, the IMF said if the gold was sold on the ¡¥open¡¦ market, as opposed to off-market transactions, the sales would be phased over time to avoid market disruptions. This gives us direction on how the sales will occur. The current European agreement limits banks' gold sales to no more than 500 tonnes a year.

Central Bank sales over the next 19 months to reduce by 400 tonnes, replaced by I.M.F. sales?

Perhaps the most important, if somewhat vague statement coming from the I.M.F. at the end of January meeting said, ¡§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.¡¨

We sat and stared at this for a while making sure the words did actually mean what they said and were not the writers mistake, but there it is, no mistake! They are saying, ¡§it would not be additional to sales already programmed by central banks, but would be accomodated by REDUCTIONS in the amount of gold that the central banks might sell under the Central Bank Gold Agreement¡¨!

By our reckoning there are only 537+ tonnes left of the ¡§announced sales¡¨ plus a possible Spanish 100 tonnes of ¡§unannounced sales¡¨ left to sell. If we interpret their words correctly, the 400 tonnes from the I.M.F. would replace 400 of these tonnes, leaving the signatories to the agreement possibly selling another 139 tonnes of ¡§announced sales¡¨ and a possible 100 tonnes of ¡§unannounced sales¡¨ over the next 19 months? Perhaps this is why the sales pace under the agreement has slowed down so much? Bear in mind the I.M.F. proposed sales, if it can hudle the remaining obstacles, may be some time away still. There¡¦s no hurry for the signatories to sell the little left, so they can afford to wait still?

Will the Sales Impact the Gold Price?

Perhaps these obstacles can be overcome by September 26th, 2008, at which point these proposed sales ¡Vwere they to occur thereafter over the next year. With the statement above from Crocker of the I.M.F. we see that the full compliment of gold sales from the C.B.G.A. will not be met, and will fall to around 239 tonnes over the next 19 months. Add the 400 tonnes of the I.M.F. and the amount to sell over 19 months remains the same [plus a potential 100 tonnes from Spain] still only 8.4 tonnes a week, if indeed they will sell what they announced?

ƒá The ¡¥ceiling¡¦ of 500 tonnes ensures that all ¡§Official¡¨ sales will not affect the gold price.
ć The I.M.F. have said they will not disturb the gold price.
ƒá Lower sales than the ¡§ceiling¡¦ of 500 tonnes would actually spur the gold price higher still.
ƒá And against this positive picture, all the sales of the European Central Bank in the past [the ¡§Washington Agreement¡¨ from 2000 to 2004 and the Central Bank Gold Agreement 2005 to 2009] have not prevented the gold price from nearly quadrupling.

This is extremely positive for the gold price!

If they went, instead, to the auction method it would simply be an open invitation to Russia or China or another Central Bank to bid in the knowledge that they will get the gold without driving up the gold price. Once it is known they achieved the purchase, it will be known that gold is being sought after by Central Banks. Add to that the fact that the sales will be limited to 400 tonnes. This removes the so-called Central Bank gold sales ¡§overhang¡¨ from the market.
It is clear that there is a spirit, quite rightly, that is within ¡§Official Circles¡¨ that does not like to further gold sales.

If they sell direct to a Central Bank then their attempts to abandon the use of gold in the monetary system will in reality, if not in theory, be undermined. This can only be positive for the gold price!

¡§So any which way you look at it these potential sales if they come to pass, will, in reality, have a positive impact on the gold price.¡¨

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