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Monday, May 4, 2009

Jim Rogers Claims GOLD could plunge to $700 or less on IMF sale

Will the International Monetary Fund's (IMF) decision to sell 403 metric tons of gold drive down gold prices? Yes, gold prices will plunge to $700 or below that if and when IMF really sells its gold reserves, says legendary global commodities investor Jim Rogers.

Rogers, who left the United States to settle down in Singapore last year, and who is regarded as a commodities guru globally said he will hold on to his gold and is waiting to buy more gold because he expects gold prices to considerably come down when IMF sells its gold holdings.

”The fact is that IMF is trying to get permission from everybody to sell gold. I don’t know it will succeed or not. But if and when IMF sells its gold, gold prices may go to a bottom. Who knows? It may go down to US$700. IMF has got a lot of gold to sell. If it does, I hope I’m brave enough and smart enough to buy more,” Rogers told Bloomberg Radio in an interview.

Rogers launched the Rogers International Commodity Index in 1998. The index is a composite, US dollar-based, total return index, designed to meet the need for consistent investing in a broad based international vehicle. The Index represents the value of a basket of commodities consumed in the global economy, ranging from agricultural to energy to metal products.

Rogers who is hot on China has been investing heavily into Chinese investment and agricultural funds in the last year. According to Rogers, three billion people living in Asia, most of them in India and China, will account for a major portion of the total demand for commodities in the coming years.

Rogers, author of such famous books like Hot Commodities and A Bull in China, recently launched an agricultural commodities index focused on food consumption in China. In an interview to Commodity Online Rogers said recently: “China is a fascinating place to invest in. China is on the rise, like America 100 years ago, and the problems the Asian giant is encountering right now in certain, mainly export-driven, sectors of its economy will not alter the country’s long-term trajectory. “

Rogers who is known for a investor across various commodities has never been fascinated by gold. Recently he had stated that gold trading at COMEX was a paper game.

Rogers said that is worried that gold prices are under pressure because of the IMF decision to sell gold reserves.

He said owns own some gold. But at the same Rogers is not planning to buy any more yellow metal because IMF, which is one of the largest owners of gold in the world, is desperate to sell its gold.

Rogers’ comments come in the wake of the G20 leaders’ decision that IMF should sell gold from its reserve to help stimulate the world economy.

"Additional resources from agreed sales of IMF gold will be used, together with the surplus income, to provide US$6 billion additional concessional and flexible finance for the poorest countries over the next two to three years," G20 leaders had said.

The IMF’s board approved a proposal in April 2008 to sell 403.3 metric tons of bullion as part of a plan to close the Washington-based lender’s annual deficit. The sale of 403.3 tonnes of gold was originally proposed in 2007 after a committee chaired by Andrew Crockett recommended the IMF adopt a new funding model.

The IMF is the third-largest holder of gold reserves after the US and Germany, with 3,217 tons in deposits, according to the World Gold Council (WGC).

Countries like India and China want IMF to sue the money to invest to raise IMF liquidity or spend it to improve incomes of the poorest countries.

A large part of the IMF gold may find its way into central banks and private players. Since most of it will be out of reach for retail markets, gold prices may not get hammered.

Globally gold prices now are in the $870-$950 per ounce range. India and Turkey, traditionally big buyers of gold, have not bought much lately because of low domestic demand.

According to IMF, a recent surge in IMF lending to countries facing balance of payments crises related to the global economic slowdown and financial turmoil has led analysts to question whether the Washington-based institution will proceed with the plan.

The sale is expected to hit the gold price, which is at the peak now. Following the recession, gold prices have soared to new heights as safe haven buyings increased.

Disclosure I am long GLD shares.

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