WGC puts seal of approval on manner of IMF gold sale to India

The World Gold Council has said it approves of the mechanism of the IMF gold sale to the Indian Central Bank and that it expects the remainder of the mandated IMF sale will also be handled in off-market transactions.

LONDON - 

The World Gold Council (WGC) has announced that it is pleased to note that the International Monetary Fund has completed the sale of 200 tonnes of gold to the Reserve Bank of India.  Given that the sale has passed off with barely a ripple in the gold market, the gold marketing body's approval is not surprising.

"The transaction" says the WGC "is an important step in the IMF's limited gold sales program, which is designed to help put the Fund's finances on a sound long-term footing and enable it to step up concessional lending to the world's poorest countries."

With the IMF due to sell a further 203.3 tonnes of gold over an unspecified period, the quick sale to India at current price levels gives the IMF some breathing space as it prepares to negotiate the sale of this balance.

Aram Shishmanian, WGC CEO, said that gold always plays an important role as a protector of wealth, and in these current times of financial instability, that role has taken on a new found prominence. "The fact that these sales will effectively rescue the IMF from a difficult situation regarding its own finances" he said "is proof of gold's unique investment characteristics, long-recognised by central bankers and institutional and individual investors alike."

He also commented that in its release on the sale, the IMF clearly indicated its preference to sell the entire 403 tonnes to official sector institutions, rather than over an extended period of time via CBGA3. In light of this, and the well-publicised concerns of many central banks over the level of their exposure to the US dollar, he expects further off-market transactions must be a clear possibility.

The sale raised US$6.7 billion, equivalent to SDR 4.2 billion, and was executed at market prices, in line with the IMF's Articles of Agreement.  It also took place in accordance with the stated commitment of the IMF to follow the recommendations of The Crockett Report of 2007 and ensure that its gold sales do not disrupt the smooth functioning of the gold market.  

It was the Crockett Report that first proposed the IMF should adopt a new income model, including the establishment of an endowment, funded by the proceeds of limited and structured gold sales. More recently at the G-20 Leaders Summit in April of this year, heads of state proposed to use additional resources from the gold sales to provide an extra US $4 billion for poor and indebted countries over the next 2-3 years.

Given the IMF's status as effectively the global "lender of last resort", WGC believes it is imperative that the organisation continues to hold large gold reserves and acknowledges the IMF's public declarations that:  "The IMF should continue to hold a relatively large amount of gold among its assets, not only for prudential reasons, but also to meet unforeseen contingencies."

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