IMF Deficit
The services of the IMF have been needed less frequently in the past decade, but its cost base has not decreased in proportion. During the past few years, there has been discussion about the future role of the IMF, how to correct its operating deficit, and whether it should sell some of its gold reserves, and use the interest from the proceeds to plug the gap.

11th April 2008
The IMF posted updates to its website in April 2008, which were highly relevant to its gold position. We can probably do no better than to include the text of its IMF Gold Sales - FAQ page here:

IMF Gold Sales / Frequently Asked Questions Last Updated: April 11, 2008 Strictly limited gold sales (403.3 metric tons) are being discussed by the membership of the IMF as part of a package of expenditure and income measures to put the IMF's finances on a sustainable basis. No Executive Board decision to sell gold has been taken. How much gold does the IMF hold and how was it acquired? What IMF gold can be restituted (returned) to its members? Why does the IMF hold gold and what is IMF policy on gold sales? Why is the IMF considering gold sales? Has the IMF decided to sell gold? What is the expected volume of gold sales? When are the sales going to take place? How will disruption of the gold market be avoided? Where can more information about the IMF gold be obtained? Q. How much gold does the IMF hold and how was it acquired? A. . The IMF holds 103.4 million ounces (3,217 metric tons) of gold, making it the third largest official holder of gold. The gold is valued on its balance sheet at SDR 5.9 billion (about $9.2 billion) on the basis of historical cost [About $90 per ounce - LC]. The market value of this gold was $95.2 billion as of February 20, 2008 ($920 per ounce - LC). . 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. Q. What IMF gold can be restituted (returned) to its members? A. . 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. (An Executive Board decision to restitute gold requires support from an 85 percent majority of the total voting power.) . 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. Q. Why does the IMF hold gold and what is IMF policy on gold sales? A. In addition to the limitations set forth in the IMF's Articles of Agreement, the 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. Q. Why is the IMF considering gold sales? A. . The IMF's finances have become unsustainable following a large decline in credit outstanding in recent years. In the absence of measures, an income shortfall of $165 million in FY2007 is expected to widen to about $400 million by FY2010. . The report of the Committee of Eminent Persons chaired by Andrew Crockett (the Crockett Committee) recommended that the IMF adopt a new income model with more diverse sources of income. (Other committee members are Mohamed A. El-Erian, Alan Greenspan, Tito Mboweni, Guillermo Ortiz, Hamad Al-Sayari, Jean-Claude Trichet, and Zhou Xiaochuan). . One of the income sources the Committee proposed is the creation of an endowment funded from the proceeds of strictly limited gold sales to be carried out within safeguards to avoid disruption of the gold market (see this question). Q. Has the IMF decided to sell gold? A. . No Executive Board decision to sell gold has been taken. Under the Articles of Agreement, a decision to sell gold requires an 85 percent majority of the total voting power. . The United States authorities have informed the IMF that U.S. Congressional authorization by law would be required before the U.S. Executive Director could support a decision for the IMF to sell gold. . The United States Treasury announced on February 25, 2008 that it will seek authority from Congress for a limited sale of gold, consistent with the Crockett Committee's recommendation. Q. What is the expected volume of gold sales? A. . The Crockett Committee recommended that gold sales be strictly limited to the gold the IMF has acquired after the Second Amendment, which amounts to 12.97 million ounces (403.3 metric tons), equivalent to one-eighth of the IMF's total gold holdings. . As noted above, there is no provision in the Articles to restitute this portion of the IMF's gold holdings to members of the IMF. Q. When are the sales going to take place? A. . No Executive Board decision to sell gold has been taken, so no timetable for sales has yet been set (see this question). . If gold is sold on the market, rather than to another official gold holder, the Crockett Committee recommended that such sales be phased over time in order to avoid disruption of the gold market. Q. How will disruption of the gold market be avoided? A. The Crockett Committee recommended a number of safeguards on gold sales to avoid disruption of the gold market: . The Committee recommended a firm limit on the volume of gold sales as a key safeguard, given the IMF's standing as the third largest official holder of gold. . The Committee recommended that the IMF's gold sales should not add to the announced volume of sales from official sources. Hence, the IMF's gold sales should be coordinated with current and future Central Bank Gold Agreements (CBGA). (Under the current CBGA, a group of European central banks have agreed to limit their gold sales to no more than 500 metric tons annually). . Phasing of IMF gold sales over time is also recommended by the Crockett Committee to avoid disruption of the gold market, together with careful handling of the public communications related to gold sales. Q. Where can more information about the IMF gold be obtained? A. . More information on the IMF gold is available at the fact sheet GOLD IN THE IMF Reproduced below).

A Factsheet - September 2008 Gold in the IMF Gold played a central role in the international monetary system until the collapse of the Bretton Woods system of fixed exchange rates in 1973. Since then, the role of gold has been gradually reduced. However, it is still an important asset in the reserve holdings of a number of countries, and the IMF remains one of the largest official holders of gold in the world. The IMF's gold holdings The IMF holds 103.4 million ounces (3,217 metric tons) of gold at designated depositories. The IMF's total gold holdings are valued on its balance sheet at SDR 5.9 billion (about $9.3 billion) on the basis of historical cost. As of August 31, 2008, the IMF's holdings amounted to $86.2 billion (at then current market prices). A portion of these holdings were acquired since the Second Amendment of the IMF's Articles of Agreement in April 1978, amounting to 12.97 million ounces (403.3 metric tons), with a market value of $10.8 billion as of August 31, 2008. As noted below, this part of the Fund's gold holdings is not subject to restitution to members. The IMF acquired the majority of its gold holdings prior to the Second Amendment through four main types of transactions. First, it was then prescribed that 25 percent of initial quota subscriptions and subsequent quota increases were to be paid in gold. This represented the largest source of the IMF's gold. Second, all payments of charges (i.e., interest on members' use of IMF credit) were normally made in gold. Third, a member wishing to purchase the currency of another member could acquire it by selling gold to the IMF. The major use of this provision was sales of gold to the IMF by South Africa in 1970-71. And finally, members could use gold to repay the IMF for credit previously extended. The IMF's policy on gold today The Second Amendment to the Articles of Agreement in April 1978 eliminated the use of gold as the common denominator of the post-World War II exchange rate system and as the basis of the value of the Special Drawing Right (SDR). It also abolished the official price of gold and brought to an end the obligatory use of gold in transactions between the IMF and its members. It furthermore required that the IMF, when dealing in gold, avoid managing its price or establishing a fixed price. The Articles of Agreement now limit the use of gold in the IMF's operations and transactions. The IMF may sell gold outright on the basis of prevailing market prices, and may accept gold in the discharge of a member's obligations at an agreed price, based on market prices at the time of acceptance. These transactions in gold require an 85 percent majority of total voting power. The IMF does not have the authority to engage in any other gold transactions, such as loans, leases, swaps, or use of gold as collateral, nor does it have the authority to buy gold. The Articles also provide for the restitution of the gold the Fund held on the date of the Second Amendment to members of the Fund as of August 31, 1975. Restitution would involve the sale of gold to this group of members at the former official price of SDR 35 per ounce, with such sales made to those members who agree to buy it in proportion to their quotas on the date of the Second Amendment. A decision to restitute gold requires support from an 85 percent majority of the total voting power. The Articles do not provide for the restitution of gold the Fund has acquired after the date of the Second Amendment. The IMF's policy on gold is governed by the following principles: . As an undervalued asset held by the IMF, gold provides fundamental strength to its balance sheet. Any mobilization of IMF gold should avoid weakening its overall financial position. . 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. . The IMF has a systemic responsibility to avoid causing disruptions to the functioning of the gold market. . Profits from any gold sales should be used whenever feasible to create an investment fund, of which only the income should be used. How and when the IMF used gold Outflows of gold from the IMF's holdings occurred under the original Articles of Agreement through sales of gold for currency, and via payments of remuneration and interest. As noted, since the Second Amendment of the Articles of Agreement, outflows of gold can only occur through outright sales. Key gold transactions included: . Sales for replenishment (1957-70). The IMF sold gold on several occasions to replenish its holdings of currencies. . South African gold (1970-71). The IMF sold gold to members in amounts roughly corresponding to those purchased from South Africa during this period. . Investment in U.S. government securities (1956-72). In order to generate income to offset operational deficits, some IMF gold was sold to the United States and the proceeds invested in U.S. government securities. Subsequently, a significant buildup of IMF reserves prompted the IMF to reacquire this gold from the U.S. government. . Auctions and "restitution" sales (1976-80). The IMF sold approximately one third (50 million ounces) of its then-existing gold holdings following an agreement by its members to reduce the role of gold in the international monetary system. Half of this amount was sold in restitution to members at the then-official price of SDR 35 per ounce; the other half was auctioned to the market to finance the Trust Fund, which supported concessional lending by the IMF to low-income countries. . Off-market transactions in gold (1999-2000). In December 1999, the Executive Board authorized off-market transactions in gold of up to 14 million ounces to help finance the IMF's participation in the Heavily Indebted Poor Countries (HIPC) Initiative. Between December 1999 and April 2000, separate but closely linked transactions involving a total of 12.9 million ounces of gold were carried out between the IMF and two members (Brazil and Mexico) that had financial obligations falling due to the IMF. In the first step, the IMF sold gold to the member at the prevailing market price and the profits were placed in a special account invested for the benefit of the HIPC Initiative. In the second step, the IMF immediately accepted back, at the same market price, the same amount of gold from the member in settlement of that member's financial obligations. In the end, these transactions left balance of the IMF's holdings of physical gold unchanged.

G20 Summit 2nd April 2009
G20 summit: Gold falls on IMF sales fears
The spot price of gold hit a session low of $893.24 an ounce on Thursday after Prime Minister Gordon Brown said the G20 would ask the International Monetary Fund (IMF) to bring forward its gold sales programme.

In the leaders' statement at the conclusion of the G20 summit Mr Brown said the participants agreed to "use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries". The precious metal started off the day at $927.40 an ounce and was sliding even before Mr Brown started to speak, as global equity markets rallied on tentative hopes for a recovery.
Investors were less interested in safe haven buying as optimism grew that the measures proposed would help boost the global economy. However, prices recovered later in the session to about $908 an ounce after IMF Managing Director Dominique Strauss-Kahn clarified that the statement was not proposing any new gold sales. The IMF had already announced the sale of 403.3 metric tonnes of gold, worth about $11bn (£7.5bn), to bolster its finances, but the 3.6pc fall to the session low reflected fears that additional gold sales were being planned. The IMF has around 3,217 tonnes of gold reserves, which means it holds the third-largest reserves of the precious metal after Germany and the US. It has been calculated that Gordon Brown cost the British taxpayer more than $2bn by selling 400 tonnes of bullion in auctions between 1999 and 2002 when the price was at a long-term low.

Bank of England Gold Sales

IMF Revaluation & Gold Sales

Swiss National Bank Gold Sales