The price of Gold slipped 1.5% from an overnight high as the US opened for business on Tuesday after the International Monetary Fund (IMF) approved a decision to start selling 400 tonnes of its bullion reserve.
Crude oil dipped 0.7% to $108.35 per barrel; Treasury yields ticked lower as bond prices rose; world stock markets fell around 1% across the board.
"Even though the IMF sells gold, I don't think it will have much impact," said Ronald Leung of Lee Cheong Gold Dealers in Hong Kong to Reuters this morning.
"They will do it bit by bit."
The world's third largest gold hoarder, the IMF currently holds 3,217 tonnes. The Fund was set up after World War II to monitor global financial stability, lend to countries suffering big trade deficits, and help developing nations establish formal banking and financial systems.
Now faced with a $400 million deficit in its own $1 billion budget this year, the IMF's Board of Directors today approved "a landmark agreement that will put the institution on solid financial footing and modernize the IMF's structure and operations," according to managing director Dominique Strauss-Kahn.
Four hundred jobs will go, while a new business model aims to generate $300 million in additional income "within a few years".
"I’m not in the slightest bit surprised the IMF came out with this statement,” says Phillip Klapwijk, executive chairman of the GFMS consultancy in London.
"We certainly thought it was on the cards they would follow the advice of their expert group, which recommended gold sales," he told South Africa's MiningMX.com this morning.
Most crucially for the Gold Market, the IMF today said its gold sales would be "conducted in a transparent manner [and] not add to official sales."
That suggests the IMF will seek to join the Central Bank Gold Agreement begun in 1999. Its annual quota currently caps total gold sales by the major Western governments to 500 tonnes per year.
The IMF's decision also requires approval by the US Congress. It holds the casting vote in IMF policy. Congress voted against an IMF gold sale in 2005.
In the broader markets on Tuesday, Asian shares – led lower by chipmakers – lost 1.1% on average after AMD, the US giant, reported a drop of one-fifth in its year-on-year sales.
Banking shares then added to the pressure in Europe – and the Pound Sterling dumped 2.5¢ to the Dollar – on news that British house prices fell last month at their fastest pace since Sept. 1992, the very depths of the last UK property crash.
Today brings Pending Home Sales data for the United States for Feb., expected to show a 1% drop. US Consumer Confidence numbers from the monthly ABC report are due tonight, but not before the much-awaited minutes of the Federal Reserve's April meeting.
Widely forecast to deliver a full 1.0% cut to the cost of Dollars, the Fed "only" cut rates by 0.75% to take the real rate of interest – after accounting for inflation in consumer prices – below zero.
Falling to a six-week low beneath $1.9700 today, the British Pound also reached its worst level against the Euro since late 1996 early Tuesday. The Gold Price in Sterling slipped almost £6 from a new one-week high of £467.80 per ounce.
For European investors, the price of Gold continued to tick lower, slipping 2.0% from yesterday's one-week high to €579.60 per ounce.
"There are signs that the Eurozone economy is showing good resilience, particularly in terms of business confidence and on the labor market," said a spokesman for the French finance ministry today ahead of this weekend's G7 meeting of the seven richest nations.
Excluding himself from all blame for the credit bubble which preceded it, however, "the current credit crisis is the most wrenching in the last half century and possibly more," said former Fed chairman Alan Greenspan to a conference in Tokyo today via satellite from Washington.
Analysts at the SBCC risk management group now reckon that banking write-downs could total $500 billion as a result of the sub-prime collapse.
Masaaki Shirakawa, deputy governor of the Bank of Japan, said this morning that the US government should recapitalize the banking sector "if efforts by the private sector are not enough."
Mr.Shirakawa is widely expected to be rushed into the job of BoJ governor ahead of this weekend's G7 meeting of seven rich nations in Washington. His proposed strategy was first applied by the Tokyo government in 1998, almost a decade after Japan slid into a debt-driven depression.
The Nikkei stock index ended today more than one-third below its level of 10 years ago, fully two-thirds below its all-time peak of Dec. 1989.
Real household incomes fell 0.1% in the year to Feb. 2008 according to the official statistics agency. Residential property now costs less than 65% of 1989 prices.
Commercial Japanese real estate stands two-thirds below the top of 1990.
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