GOLD NO MORE A SAFE HAVEN FOR INVESTMENT

IMF THIRD LARGEST HOLDER GOLD WORTH $95 BILLION

PAGE REPORT
May 11 - 17, 2009

International Monetary Fund (IMF), the third largest gold holder in the world, is considering selling off a certain portion of its gold reserves estimated at 3217.3 tons.

Among the ten top gold holders the US comes first with gold reserves of 8133.5 tons, Germany 3412.6 tons, IMF 3217.3 tons, France 2508.8 tons, Italy 2451.8 tons, SPDR(Exchange Trade Fund) 1104.5 tons, China 1054 tons, Switzerland 1041.1 tons, Japan 765.2 tons and Netherlands 621.4 tons.

In fact, gold which was being considered as the safe haven for investment during worldwide economic crisis losing luster with the signs of economic recovery and the top holders of the gold including the IMF may dispose off their holders to shift on dollars.

Recently concluded of G-20 Summit has also recommended that IMF should sell off some of its gold to create a fund for poor countries.

It may be mentioned that gold typically moves in the opposite direction to the dollar, as it is often bought as an alternative to the U.S. currency. However, both dollar and gold were moving together for quite sometimes as both react to risk aversion. Gold has had difficulty sustaining prices above the $900 mark as investors become more confident that the economy is improving.

The IMF gold holding of 3,217 metric tons of gold is valued on its balance sheet at SDR 5.9 billion (about $9.2 billion) on the basis of historical cost while the market value of this gold estimated worth over $95.2 billion. China earned $82.5 billion from nearly $2 trillion in foreign exchange reserves last year, and is now the fifth largest holder of gold.

Most of the IMF's gold was acquired prior to the Second Amendment of the IMF's Articles of Agreements in April 1978. The main source was members' initial quota subscriptions and subsequent quota increases, of which 25 percent were to be paid in gold. Other sources were payments of charges (i.e., interest on members' use of IMF credit), repayments to the IMF for credit previously extended, and sales of gold to the IMF by members wishing to purchase the currency of another member.

The IMF also acquired a portion of its gold holdings after the Second Amendment, amounting to 12.97 million ounces (403.3 metric tons), with a market value of $11.9 billion as of February 20, 2008. This gold was primarily acquired through the off-market gold transactions in 1999-2000, where the IMF received 402.6 metric tons of gold as repayments of IMF credit. The remaining 0.7 metric tons was received as a repayment from Cambodia in 1992.

The Articles provide for restitution of the gold the IMF held on the date of the Second Amendment to current members that were members of the IMF on August 31, 1975. The restitution of gold to this group of members would be implemented by selling gold, at the former official price of SDR 35 per ounce (about US$56), to those members who agree to buy it in proportion to their quotas on the date of the Second Amendment.

The Articles do not provide for the restitution of gold the IMF has acquired after the date of the Second Amendment. Hence, the 403.3 metric tons of gold the IMF has acquired since the Second Amendment is not available to be restituted to members.

IMF's policies on gold are guided by the following five principles:

The IMF has a systemic responsibility to avoid causing disruptions that would adversely impact gold holders and gold producers, as well as the functioning of the gold market.

As the only asset with significant unrealized value, gold provides fundamental strength to the IMF's balance sheet. Any mobilization of IMF gold should avoid weakening its overall financial position.

Gold holdings provide the IMF with operational maneuverability both as regards the use of its resources and by adding credibility to its precautionary balances. In these respects, the benefits of the IMF's gold are passed on to the membership at large, including both creditors and borrowing members.

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.

Profits from any gold sales should be retained, and only investment income should be used for purposes that may be agreed upon by IMF members and are permitted by the Articles of Agreement.

It may be recalled that the recent G-20 Leaders Summit has proposed to use additional resources from agreed sales of IMF gold to provide $6 billion in additional financing for poor countries, in a manner consistent with the IMF's new income model, over the next 2 to 3 years.