Tuesday, April 7, 2009

Gold falls below $870 on possible IMF gold sales, rising dollar

Gold futures fell Monday for a third straight session to below $870 an ounce, wiping out their yearly gains as traders shaved positions on worries that the 403 tons of gold sales by the International Monetary Fund will increase supply and depress gold prices.

"There is still this fear of a lot of selling coming from different central banks and the IMF," said George Gero, a precious metals trader for RBC Capital Markets. "The perception is that 'I am getting out of the way until all the sales are completed and let's see how it's absorbed.'"

Gold for April delivery fell $27.40, or 3.1%, to $868.20 an ounce in North American electronic trading. Gold has lost more than 6% since April 1 and is now down nearly 2% for the year. The more active June contract also fell Monday, down 3.2% at $868.50.

Leaders from the Group of 20 nations said last Thursday they endorse 403 tons of gold sales by the IMF. The proceeds will be used to provide finance for the poorest countries over the next two to three years.

The announcement came one day after the European Central Bank said it had completed the sale of 35.5 tons of gold.

The IMF's plan to sell the gold still needs to be approved by an 85% majority vote from its 185 members. The U.S., which has 17% voting power in the fund, essentially holds veto power. See full story on IMF gold sales.

If the plan is approved, the gold selling will be implemented in coordination with major central banks to minimize the impact on the market, the IMF said.

The possible IMF gold sales helped gold prices move lower in the short turn, said Hussein Allidina, an analyst at Morgan Stanley. But he added he sees "any weakness in price as a buying opportunity as the sale would occur over years and be under the CBGA limit."

The second Central Banks Gold Agreement, or CBGA, caps total gold sales of the signatories at 500 tons a year and expires in September. A third CBGA is expected to be signed before September. See related story about central bank gold selling.

Also helping gold move lower Monday, the U.S. dollar rose against most of its major rivals Monday, with the dollar index up nearly 1% at 84.767. See Currencies.

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