We have been waiting such a long time for clarity on how International Monetary Fund (IMF) is to conduct its gold sales of 403.63 tonnes, writes Julian Phillips of the Gold Forecaster.

The IMF Executive Board has now approved those gold sales. Now the head of the IMF, Dominique Strauss-Kahn, has said "These sales will be conducted in a responsible and transparent manner that avoids disruption of the gold market.

"Most importantly, the sales are strictly limited to 403.3 metric tonnes, which is one-eighth of the fund's total holdings, so the IMF will continue to hold a relatively large amount of its assets in Gold."

Prior to selling this gold on the open market, the IMF is prepared to sell the gold directly to central banks or other official sector holders. These sales to official sector holders will be conducted at market prices and would shift official gold holdings without changing total official gold holdings.

Any IMF Gold Sales onto the open, international market would be phased over time, it says. Regular external reporting on gold sales will also be provided to assure markets that gold sales are being conducted in a responsible manner.

Let's be clear on this: If the IMF is to offer this Gold to other central banks before offering the gold to the open market they are likely to receive bids that would certainly confirm that central banks value gold in their reserves and are prepared to buy it in even at these prices! Whether it received a few or many bids is irrelevant. If all the 403 tonnes were sold this way, then that confirmation would elevate gold as a reserve asset and a measure of value once again.

And if there is an amount left over, it will be sold in a manner that will not brutally bring the Gold Price down, since it must avoid disruption of the gold market.

Which large Dollar surplus holding nations can afford to make this investment? Far more than just China or Russia, we believe. Indeed, we expect the IMF is already receiving offers from these central banks. So will any of this gold make it to the open market? What if only 100 tonnes are left for the market? What if none is left? Sales of this gold to any central bank will be positive for the Gold Price. Sales of all of it will bring a confidence to the market that will send it to new heights.

We believe that this statement from Strauss-Kahn, in itself extremely positive for the Gold Price, will represent confirmation of gold's role in the monetary system.

Just consider the tonnage sold by the Central Bank Gold Agreement Signatories over the last five years. With the final week of this Agreement now behind us, and the new Agreement begun (with its reduced 400-tonne annual ceiling), the future of European central bank selling becomes very clear.

The original intention of the signatories to the Agreement, first signed in 1999 and then renewed in 2004, was that they wanted to bring transparency to their gold sales, so as to make it clear to the world that they were not going to dump gold onto the market, a fear that had persisted for the previous 20 years prior to the "Washington Agreement".

To that end, the signatories – primarily the Western European central banks – announced in advance the amounts they were going to sell in the future. But it was not an announcement to sell a specific amount during the five years of the agreement; rather an announcement of their total possible future sales.

Some signatories made no announcement and thus made unexpected sales. Spain, Belgium and the Eurozone leader, the European Central Bank, were the only holders that did this. But Belgium has not sold any gold since 2006 and Spain has not sold since 2007.

More importantly, since Switzerland's announcement to sell an extra 150 tonnes, no announcements to sell have been made by any country that signed the Agreement. The residual amounts from previous announcements still remaining to be sold are very small, and they lie in the hands of countries that have not sold for the last three and two years respectively.

Now add to this fact that the number of signatories has increased substantially (bringing in signatories who hold barely any gold anyway and with no announcements being made to sell from them) and you have a remarkable picture emerging. There appear to be no sellers among the signatories at all!

Yes, the agreement allows for up to 400 tonnes a year to be sold. But as we mentioned in an earlier essay, this 400 tonne limit allows for the IMF to sell its 403 tonnes anyway it wishes under this agreement, in one shot, or over the period in dribs and drabs, whichever way they want to go. So this 400 tonne limit would seem to be for the benefit not of the signatories, but for the IMF!

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