Gold Forecaster
- Global Watch
Why the I.M.F. believes
the 400 tonnes of gold it wants to sell is its own!
Julian D.W.
Phillips
Gold Forecaster snippet
Feb 19, 2008
There has been a lot of talk
of late of potential sales of I.M.F. gold. The more we look at
the subject, contrary to our previous view, the more likey it
seems possible [not yet probable], but if it does happen, it
will not happen again thereafter for solid reasons. If the
sales do take place they will happen from September 2008 onwards.
It will still have to get past
the U.S. Congress a most formidable and possibly insurmountable
obstacle.
The first question that will
be asked is just whose gold do they want to sell, after all the
gold held by the I.M.F. belongs to each individual nation that
contributed it, so how dare the administrative side of the I.M.F.
propose selling its members gold and how dare some members of
the I.M F. approve of the sale without getting the OK from other
members?
The answer is quite simple.
The I.M.F. does not believe that the gold they propose selling
belongs to any member at all, but in fact, belongs to the I.M.F
itself. Consequently, the only discussion surrounds the
disposal of the I.M.F.'s own assets! How could the I.M.F. get
its own gold?
The purchase of two
members gold by the I.M.F.
Between December 1999 and April
2000, separate but closely linked transactions involving a total
of 400 tonnes [12.9 million ounces] of gold were
carried out between the I.M.F. and two members (Brazil and Mexico)
that had financial obligations falling due to the I.M.F.
But this was not a sale into
the open market, but an "internal sale". In the first
step, the I.M.F. sold gold to the members at the prevailing market
price and the profits were placed in a special account and then
invested for the benefit of the HIPC Initiative.
In the second step, the I.M.F.
immediately accepted back, at the same market price, the same
amount of gold from the member in settlement of that member's
financial obligations falling due to the Fund. The net effect
of these transactions was to leave the balance of the I.M.F.'
holdings of physical gold unchanged. However, ownership of
that gold moved from Brazil and Mexico to the I.M.F.
To emphasize the point and
giving it relevance to the present proposals, this 400 tonnes
of gold no longer belongs to Brazil or Mexico it now belongs
to the I.M.F. itself!
This could change the attitude
of the members of the I.M.F. as it has changed the attitude of
the largest members, the G-7 countries, the Group of Seven rich
nations [U.S. Japan, Germany, Britain, France, Italy and Canada]
already.
This increases the chances
of a sale this time, while not affecting any other member's gold.
To give you a little more background on the I.M.F. so as to
make sense of this, a brief look at the I.M.F. and its business
will help.
The Business of the
I.M.F.
The I.M.F. acquired all its
holdings [gold and other] from member states through the original
Articles of Agreement. [The Articles were amended in 1978, eliminating
the direct use of gold in the exchange rate system].
Founded at the end of World
War II with donations of cash and gold from its member nations,
the I.M.F. works at "crisis prevention", monitoring
and hoping to avoid policy mistakes that could lead to big financial
problems. The I.M.F. also lends to countries facing balance
of payments problems from its 'cash' of $338 billion. By charging
interest on short-term loans, the I.M.F. earns its keep. The
I.M.F. also makes loans to low-income countries implementing
poverty reduction programs, currently helping 23 countries from
Afghanistan to Sierra Leone.
Since the Argentine crisis
of 2001, however [blamed on the I.M.F.'s advised policies] new
I.M.F. lending, has shrunk dramatically as the world's emerging
economies have developed remarkably.
In essence, the I.M.F. in the
light of the changed global scene, should be downsizing considerably,
in line with its reduced business, a principle that should govern
all monetary institutions. This would enable it to match its
costs to its reduced income. The fund is spending $1 billion
a year but only bringing in $600 million! The I.M.F. is
not an interest earning institution, there to maintain redundant
economists. The thought of increasing income to an institution
that can no longer justify its size should send alarm signals
to its members. This was emphasized by a report submitted to
the I.M.F. Executive Board, the Committee, headed by Bank of
International Settlement head Sir Andrew Crockett, who concluded
that the I.M.F.'s current income model, which relies heavily
on the interest it earns from loans to member nations, is "no
longer appropriate." But there it is, they feel they
should bail out the I.M.F. from its present mess.
Poor reasons for selling
The reason the G7 gave for
approving these sales is: -
"This is arguably a good time to consider selling some
of these gold holdings and investing the proceeds in financial
securities with positive yields."
It is amazing that such a statement
is made by such qualified men, but they do have to promote paper
instruments. That is their business. Of course, with gold
having quadrupled in the last four or five years, no solid financial
securities with positive yields has come anywhere near to matching
this performance, nor is any likely to. Indeed the Credit crunch
has confirmed just how risky alternative investments to gold
can be.
The fund holds 3216.17 tonnes
[103.4 million ounces] of gold worth some $92 billion at current
market prices. But we are talking here about only the 400 tonnes
of gold deemed to belong to the I.M.F. as an institution. [Thin
ground, but that's why it is only this 400 tonnes]
We have produced fuller articles
on the I.M.F. potential gold sales which are needed to properly
understand the I.M.F. and its gold, in the current issues of
the Gold Forecaster - Global Watch for subscribers.
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"Is there good
reason for the I.M.F. to sell this gold? |
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Please subscribe to GoldForecaster
for the entire report.
Feb 19, 2008
-Julian
D.W. Phillips
email: gold-authenticmoney@iafrica.com
321gold Ltd
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