G7 clears IMF gold sale plan

BERLIN, SEPT 22: In a compromise package to avoid crash in gold prices, the world's seven richest countries have finalised a mechanism fo...

BERLIN, SEPT 22: In a compromise package to avoid crash in gold prices, the world8217;s seven richest countries have finalised a mechanism for the IMF to sell about one-tenth of its gold reserves to central banks and not on the open market as part of a global initiative to finance debt relief to 36 of the poorest countries.

The Group of Seven industrialised countries G-7 has cleared the decks for the IMF to sell about 14 million ounces of gold in the off-market gold sale, Germany8217;s development and cooperation minister Keidemarie Wieczorak-Zeul said. Describing the G-7 decision as a breakthrough, Wieczrek-Zeul hoped that it would be ratified at the annual IMF meeting due to be held in Washington later this week.

The minister made it clear that the gold sale plan envisaged sale of the yellow metal from the IMF reserves only to central banks and not in the open market to avoid pushing prices down. The IMF gold sale is expected to be worth 3 billion to meet its share in the estimated 20 billion debt reliefto the world8217;s poorest countries in the immediate future.

The IMF gold sale was one of the key components in the historic quot;cologne debt initiativequot; launched at the annual G-7 summit here in June this year to ease the crushing debt burdens of the 36 poorest countries. The G-7 leaders had decided to waive in an all estimated 70 billion worth of debt held by the poorest countries to ease their crushing debt burdens.

The open market sale of gold was scrapped after gold-producing nations objected that selling even a small portion of the reserves could further depress gold prices.

The IMF had originally floated the idea of selling some of its 103 million ounces of gold reserves in the open market to fund the debt reduction. It has been reported that the IMF is turning to an quot;accounting solutionquot; that takes advantage of the fact that the gold reserves are carried on its books at a value far below even today8217;s weak market prices.

Since the fund8217;s bye-laws prevent it from simply revaluing its reserves, theIMF is working on a quot;paper transactionquot; that would cycle ownership of 14 million ounces of gold through several central banks in a way that would allow it to revalue the gold. The planned arrangement would create a paper quot;profitquot; of about 2.1 billion that the fund would beg free to invest for debt relief.

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The quot;Cologne debt initiativequot; was launched in the hope of providing quot;faster, deeper and broaderquot; reduction of foreign debt owed by the 36 of the world8217;s poorest countries and to free scarce resources for priority social spending projects. Germany is currently holding the current G-7 chairmanship for the year 1999.

Gold shoots up in India

MUMBAI: Gold and silver rose steeply on the bullion market here today with the yellow metal skyrocketing by Rs 100 per ten gram and silver rallying by Rs 105 per kg. This follows better-than-expected results from the second UK gold auction, traders said. Silver displayed big rally in sympathy with gold.

Standard gold jumped up by Rs 100 to close at Rs 4150as against the last close of Rs 4050. 22-carat gold was nominally quoted smartly higher at Rs 3840 from Rs 3745 and ten-tola gold bar .999 purity shot up by Rs 1000 to 48,500 from yesterday8217;s close of Rs 47,500. Ready silver .999 fineness opened firm at Rs 8125 but later, reacted moderately and closed at Rs 8075, showing a smart rise of Rs 105 over the last close of Rs 7970. Raw silver .916 fineness firmed up by Rs 115 to Rs 7955 from Rs 7840 and tenderable silver rose to Rs 8080 from Rs 7975.