Gold Falls as U.S. Pledges Support for Some IMF Bullion Sales

By Pham-Duy Nguyen

Feb. 25 (Bloomberg) -- Gold fell the most in almost two weeks after the U.S. said it would back ``limited'' sales of bullion reserves by the International Monetary Fund, the third- largest holder of the precious metal.

Some of the IMF's $98 billion in reserves should be sold to cover a revenue shortfall, said David McCormick, the Treasury's undersecretary for international affairs. Gold has more than tripled in the past seven years, gaining 12 percent this year and reaching an all-time high of $958.40 an ounce on Feb. 21.

``Anytime there's more supply coming into the market, the price goes lower,'' said Ron Goodis, the futures trading director at Equidex Brokerage Group Inc. ``There's a fear that the large speculators who've been pushing this market higher might step back and wait to buy.''

Gold futures for April delivery declined $7.30, or 0.8 percent, to $940.50 an ounce on the Comex division of the New York Mercantile Exchange. The percentage drop was the biggest for a most-active contract since Feb. 12.

The IMF holds 3,217.3 metric tons of gold, the most behind the central banks of the U.S. and Germany, according to data from the producer-funded World Gold Council. The U.S. has 8,133.5 tons, and Germany holds 3,417.4 tons.

The Bush administration said it supported sales of as much as 12.9 million ounces, or about 401 metric tons.

`Tepid' Response

``The response from the market is muted or tepid at best,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``It turns out that if you look at it historically, central banks tend to sell at the lows and buy at the highs.''

Currently, central banks sell gold under guidelines of the Central Bank Gold Agreement. Under that accord, countries that adopted the euro, along with Switzerland and Sweden, agreed to limit sales to 2,500 metric tons from Sept. 27, 2004, to Sept. 6, 2009, or 500 tons a year.

Official sales by central banks rose 33 percent in 2007 to 488 metric tons, according to estimates by research company GFMS Ltd.

Any amount sold by the IMF would likely be limited to quantities in line with the central bank accord, said George Milling-Stanley, the World Gold Council's manager of investment and market analysis.

Second and third-tier central banks, including China's and India's, may buy the IMF's gold, limiting the pressure on prices by keeping the bullion out of the hands of investors, said Dennis Gartman, economist and editor of the Suffolk, Virginia- based Gartman Letter.

Dollars for Gold

``If you're China, you're holding all those dollars in reserves, it wouldn't be a bad idea to swap some of that for gold,'' Gartman said.

China is the 10th-largest holder of gold among central banks, with just 1 percent, or 600 metric tons, in reserves, according to World Gold Council data.

World gold-mine production fell 1.4 percent last year to 2,444 metric tons, an 11-year low, GFMS has said.

Barrick Gold Corp. Chief Executive Officer Greg Wilkins said in an interview on Bloomberg Television that the gold market can absorb the sale by the IMF. Barrick is the world's biggest producer of the metal.

Gold may rebound and climb to $1,000 an ounce this year as inflation accelerates and the Federal Reserve weakens the dollar by cutting interest rates, some analysts said.

The UBS Bloomberg Constant Maturity Commodity Index gained as much as 0.8 percent to a record today, led by agricultural commodities. Gold rose 31 percent in 2007 as inflation rose at the fastest pace since 1990.

``It's the price of goods and services that matter to determine gold's value,'' said James Turk, founder of GoldMoney.com, which had $305 million in gold and silver in storage for investors at the end of January. ``Gold is a good value today.''

Silver futures for March delivery rose 5 cents, or 0.3 percent, to $18.085 an ounce. The metal has gained 21 percent this year, while gold is up 12 percent.

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