The IMF has stated that it will increase its funding for low-income countries and offer new lending instruments to help those countries deal with the global economic crisis.

The fund was however quick to add that the sale of its gold reserves would be done in manner that would not distort the world gold market.

The IMF board will approve a gold sale before its annual meeting in October, Reza Moghadam, director of strategy, policy and review, said on 29 July. A planned sale of 13 million ounces (403 tons) was accepted by the US last month.

The vote is likely to be taken in September, say analysts, but with the new Central Bank Gold Agreement also under negotiation and due for implementation on 27th September this year, the logistics are likely to be decided before then.

It is not yet known whether the IMF will become a signatory to the next CBGA or whether it will take up an existing allocation from other signatories with no large-scale sales intentions, but it has been made abundantly clear that any such sale fron the Fund is expected to be under the auspices of a CBGA.

"We have committed as part of our new income model to have that gold sale, if done on the markets, to be done through the central bank sales mechanism," Moghadam said.

Moghadam told a conference call the sales would probably occur "all the time" within the central bank agreement (CBGA) and could take two to three years before sales are completed.

He said he hoped negotiations on the new Central Bank Gold Sales Agreement will also be finalised by October. The current 5-year agreement expires in September.

This process began with the Crockett Report in 2007, which recommended that the IMF adopt a new income model, including the establishment of an endowment, funded by the proceeds of limited and structured gold sales.

More recently at the G-20 Leaders Summit in April of this year, heads of state proposed to use additional resources from the gold sales to provide an extra US$4 billion for poor and indebted countries over the next 2-3 years. This will not impact either the total level or the manner of the gold sales.

Analysts have not always agreed over the effect the IMF sales willl have on gold prices.

The International Monetary Fund will probably sell 200 metric tons of gold annually starting next year, “potentially weighing on prices,” Citigroup said in a report Friday.

Gold will fall to US$850 an ounce in the second half of 2010, Citigroup Sydney-based analyst Alan Heap wrote in the report.

“We believe the sell down will likely begin in 2010 and see around 200 tons sold per year, potentially weighing on prices,” Heap wrote in the report.

European central banks have agreed to regulate gold sales under the terms of two successive Central Bank Gold Sales Agreements, or CBGA, starting in 1999. The agreements were a key part in supporting an eight-year market rally, with prices for the precious metal at one point topping US$1,000 an ounce mark.

Spot gold surged to $954.50 on Friday as the dollar fell after the announcement of second quarter US GDP figures.

While the IMF is not currently a signatory of the pact, selling its gold within the CBGA would avoid disruptions to the gold market. The price may rise to US$1,000 in the first six months of 2010, according to Heap.

Under the terms of the existing CBGA, in force since 2004, signatories can sell a maximum of 500 tonnes of gold per year, although sales have fallen well short of the quota in recent years.

Analysts have also speculated that China may be interested in buying some or all of the IMF gold, after Beijing revealed in April it had secretly raised its gold reserves since 2003, confirming years of speculation it had been buying.

We expect that the IMF will sell the gold over the next few years, but do not believe that this presents a strong negative risk to gold prices as it will be orderly and maybe even off market,” Morgan Stanley analyst Hussein Allidina told Bloomberg in April. “Central banks such as those in China, Russia and Japan are obvious counter-parties” to such off- market sales

The IMF said on 29 July it would use some of the proceeds from the sale of its gold to increase lending to poor countries by up to US$17 billion through 2014.

The IMF owns 3,217 tons of gold, the third-largest holder of gold after the US and Germany, according to data compiled by London-based research company GFMS. A sale of 200 tons would compare with 246 tons disposed last year by central banks, according to GFMS.

“The central bank agreement is expected to be renewed after it expires in September, although, in our view, it could now perhaps afford to be more relaxed in terms of annual limits and allocating quotas,” Barclays Capital analyst Suki Cooper wrote in a report today.

And it is perfectly possible that the IMF gold sale may all yet go out in an off-market transaction to another central bank or banks.