The unexpected announcement made by the Bank of England hampered the gold price in the market as there was a strong suspicion in the minds of the people of what would happen in the future if the country of the old gold standard i. England starts selling all the gold. As an addition to this decision, the IMF planned to sell some of its gold. This lead to the erosion of the gold prices in all the central banks those was present outside the United Kingdom. As a result these major developments a very bearish outlook for gold has emerged in the market and market analysts started to feel that the entire amount of gold that was available would come into the market.
This created a major concern to all the central bankers. As a result, there were a lot of private meetings that were held and the IMF meeting that was held in Washington had a very important statement made. The which was made by the IMF was that there was a strong belief among the signatory banks that gold would have an important role to play as a monetary asset in the future and this was a very important statement for central banks to use.
Secondly, they have also stated that they would not enter the market as sellers of gold over the next five years. Another equally important statement was regarding the lending policy of the banks. The increase in the gold price during this period was also the result of the increase in the net lending of the gold by the central banks.
this price hike, the signatory central banks agreed upon a decision stating that they would freeze their lending operations of gold in the derivatives market. Though the United state was not part of this agreement for various legal reasons, they had an official policy of not to either sell or lend gold. This led to a decrease of 80-90 percent of the official gold stock in the market except for the already approved amount of gold. This led to a significant hike in the prices of the gold. Later, government and the central banks together took certain actions to stabilize the market and also to calm down fears of huge central bank sales of gold.
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