Spot gold ended European trade at $413.90/414.70 per ounce yesterday, after hitting a four-month low of $413. At a weekend meeting in London, finance ministers from the Group of Seven richest countries asked the IMF to prepare a report considering the sale of some of its 3,217 tonnes of gold.
It is expected that Rodrigo Rato, the IMF's managing director, will present the analysis to the fund's shareholders at its meeting in April. It seems unlikely that the IMF will make a recommendation on how to use its gold for debt relief, leaving the decision to its 184 member countries who will be consulted over the next few weeks. However, the British-led proposal for gold sales has already met with opposition from the US and Canada.
Analysts were sceptical that outright sales would happen due to American resistance, as the US has a 17.4 per cent stake in the IMF and could block the plan, which would require an 85 per cent majority. Some observers said an alternative option, to revalue the gold in the IMF's accounts, was more likely to succeed. It would enable the lender to write off some debt owed by poorer countries with little impact on its books. The fund used this method in 1999-2000 to release funds for the heavily-indebted poor countries debt relief scheme. The IMF's gold reserves of 104 million ounces are valued at about $8.5bn (pounds 4.6bn) - about one-fifth of its market value.
John Taylor, the US Under-Secretary of State, said at the weekend that the US had other plans for alleviating poverty. Asked about gold sales, he said: "The United States is not convinced that's the necessary way to do debt relief." US officials are reluctant to go to the US Congress, whose approval would be required for any proposal to sell gold. When the IMF last discussed gold sales in 1999, the plan was vetoed by Congress.
There was also concern that gold sales would hurt poor gold-producing countries such as Mali and Indonesia. Meanwhile, South Africa, the world's biggest gold producer which opposed the IMF gold sale plan in 1999, indicated that it might back sales this time as long as they were carefully managed. Caio Koch-Weser, Germany's deputy finance minister, was also supportive of the plan last Friday.
Talk of gold sales will weigh on prices for months and could push them to $400 an ounce, analysts said. Kamal Naqvi, at Barclays , said: "This will weigh on prices and it will go on longer than April as the (IMF) report will not give a recommendation."
Dollar strength also put pressure on gold yesterday.