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Europeans said no longer so concerned about euro''s rise against dollar
Gold the G7 Key to Unlock Third World Debt
By Veronica Brown
Reuters
Thursday, February 3, 2005
http://www.reuters.co.za/locales/c_newsArticle.jsp;:42023db3:cbb85e77
15e51778?type=topNews&localeKey=en_ZA&storyID=7528277
LONDON -- A plan that seems to spin money out of thin air to pay
poor countries' debts by revaluing IMF gold reserves is gathering
steam ahead of this weekend's G-7 meeting of the world's richest
nations, analysts said.
"This (proposal) has a lot of moral momentum going for it at
present. Standing in the way of this is not going to be very
popular," Barclays Capital precious metals analyst Kamal Naqvi said.
Under the proposal, backed by Britain's Chancellor (finance
minister) Gordon Brown, reserves of the International Monetary Fund,
the world's third biggest holder of gold bullion with more than 100
million ounces, would be revalued to levels achieved in the recent
boom market in gold and other precious metals.
With current spot gold prices at about $415 an ounce, the value of
some 90 million ounces of the IMF reserve, pegged at just above $40
an ounce under a 1971 agreement, would soar tenfold.
As part of a larger debt relief plan, that huge increase in value
would be set against the hundreds of millions of dollars
impoverished countries owe to the IMF.
Talk of the plan has overhung bullion markets this week.
"We believe that there could be more statements of support for the
UK's plan, which proposes using IMF gold to fund poor country debt
relief, from other G7 members ahead of, at or even after the G7
meeting in London this weekend," UBS Investment Bank analyst John
Reade said in a daily report.
The G7, which includes the world's richest countries, is split over
how a move to write off poor nations's debt should be financed.
The United States sees the World Bank, to which poor countries also
owe huge sums, funding its own debt relief with grants.
Any proposal to revalue or sell IMF gold would need 85 percent
majority of total voting power, giving the U.S. a strong hand as it
holds more than 17 percent voting power.
HSBC metals analyst Alan Williamson said that revaluation could be
the easiest path to take.
"It would enable the IMF to create extra revenue without disrupting
the gold market or the revenues that a lot of the developing
countries get from their gold sales," he said.
Between December 1999 and April 2000 the IMF conducted separate but
closely linked gold revaluation transactions with Brazil and Mexico,
which did not release the IMF's gold holdings on the open market.
A spokeswoman from the industry-backed World Gold Council said it
was aware of Brown's proposal but would need full details before
being able to assess the potential impact on the gold market.
Naqvi, of Barclays, said sale instead of revaluation was quite
possible and would be a negative factor for the market.
"Revaluation means little impact on the market and given that this
issue has been hanging over it in recent weeks -- it could be price-
supportive," he said.
"You had the South African mining minister saying quite clearly that
sales are possible -- that's a pretty strong suggestion that sales
are much more possible this time round."
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