Gold seen pressured by IMF sales study

Gold fell to a near four-month low on Monday as the market tried to guess what the International Monetary Fund might say about using its huge gold reserves to help finance debt relief for poor countries, Reuters reports.

Finance chiefs from the Group of Seven rich nations which met in London this weekend said IMF managing director Rodrigo Rato would look at proposals to revalue or sell gold reserves to offer debt relief and ease Third World poverty, Reuters reports.

“Whatever happens the market is going to be disconcerted and on the back foot until the April IMF meetings,” UBS Investment Bank Analyst John Reade reportedly said. Gold prices hovered around $415-416 an ounce.

The International Monetary Fund, which will report back in April on debt relief, is the world’s third biggest holder of gold bullion with more than 100 million ounces.

Under a 1971 agreement, most IMF gold is valued at $40 to $50 an ounce, about a 10th of current market prices.

Analysts told Reuters the prospect of outright sales was unlikely due to expected opposition from the United States, which has key voting rights within the IMF. But the psychological impact of the issue was bearish for the price of gold.

U.S. Treasury Under Secretary John Taylor reportedly said the United States had other plans for alleviating poverty. Asked about using IMF gold stocks, he reportedly said: “The United States is not convinced that’s the necessary way to do it.”

SGCIB economist Stephen Briggs said: “My initial feeling is that this is unlikely to go through because the U.S. is against it — but you can make a very clear case for saying the gold market is likely to go down even if sales or revaluation don’t actually happen.”

IMF sales would potentially increase the supply of gold on world markets at a time when the metal has lost some of its luster. Gold has fallen around 9% since hitting a 16-1/2-year high of $456.75 an ounce in December.

Spot gold earlier on Monday hit its lowest since mid October at $413, compared with $415.20 late in New York on Friday.

Purchases by investors in Asia have stemmed the metal’s losses because of its popularity as jewelry.

Asian traders said physical buying from India, the world’s biggest consumer of gold, should kick in if the market dipped to $410.

Normal market fundamentals were also playing a part on Monday, with a firmer dollar making the metal more expensive for non-U.S. investors.

The U.S. currency rose to a three-month high against the euro and was near a one-month peak versus the yen, Reuters reports.

Funds, which have helped to take gold prices up to their recent peaks, were also seen keeping faith with the metal once dust settles from the IMF study.