Gold Falls as U.S. Pledges Support for Some IMF Bullion Sales

Gold Falls as U.S. Pledges Support for Some IMF Bullion Sales
By Pham-Duy Nguyen

Feb. 25 (Bloomberg) — Gold fell the most in almost two weeks after the U.S. said it would back “limited” sales of bullion reserves by the International Monetary Fund, the third- largest holder of the precious metal.

Some of the IMF’s $98 billion in reserves should be sold to cover a revenue shortfall, said David McCormick, the Treasury’s undersecretary for international affairs. Gold has more than tripled in the past seven years, gaining 12 percent this year and touching an all-time high of $958.40 an ounce on Feb. 21.

“Anytime there’s more supply coming into the market, the price goes lower,” said Ron Goodis, the futures trading director at Equidex Brokerage Group Inc. “There’s a fear that the large speculators who’ve been pushing this market higher might step back and wait to buy.”

Gold futures for April delivery fell $7.60, or 0.8 percent, to $940.20 an ounce at 11:37 a.m. on the Comex division of the New York Mercantile Exchange. A close at that price would be the biggest drop for a most-active contract since Feb. 12.

The IMF holds approximately 3,217.3 metric tons of gold, following the central banks of the U.S. and Germany, according to data from the producer-funded World Gold Council. The U.S. has 8,133.5 tons and Germany holds 3,417.4 tons.

Official sales by central banks rose 33 percent in 2007 to 488 metric tons, according to estimates by London-based research firm GFMS Ltd.

Limiting Sales

Under the Central Bank Gold Agreement, countries that adopted the euro, along with Switzerland and Sweden, agreed to limit sales to 2,500 metric tons from Sept. 27, 2004, to Sept. 6, 2009, or 500 tons a year.

Any sale from the IMF would be similar to the central bank accord, said George Milling-Stanley, the World Gold Council’s manager of investment and market analysis.

Second and third-tier central banks, including China’s and India’s, may buy the IMF’s gold, limiting the pressure on prices by keeping the bullion out of the hands of investors, said Dennis Gartman, economist and editor of the Suffolk, Virginia- based Gartman Letter.

“If you’re China, you’re holding all those U.S. dollars in reserves, it wouldn’t be a bad idea to swap some of that for gold,” Gartman said.

China is the 10th-largest holder of gold amongst central banks, with just 1 percent, or 600 metric tons of gold, in its reserves, according to World Gold Council data.

World gold-mine production fell 1.4 percent last year to 2,444 metric tons, an 11-year low, according to GFMS.

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