Why the IMF's supposed gold sales don't mean much

Section:

8:40p ET Wednesday, February 17, 2010

Dear Friend of GATA and Gold:

Below is the press release issued this evening by the International Monetary Fund announcing that it "shortly" will sell 191 tonnes of gold on general markets, unlike the 212 tonnes it claimed to sell last year directly to India, Sri Lanka, and Mauritius. While the gold price quickly fell $7 or so on the news, there are a few things to remember.

1) The IMF really doesn't have any gold, just a tenuous claim on the national gold reserves of its members. Where the IMF's supposed gold is kept is a state secret. So is the location of the gold the IMF supposedly recently sold to India, Sri Lanka, and Mauritius. So are the gold bar numbers. There is no public evidence that the IMF's gold even exists, no public evidence that last year's supposed IMF gold sales were anything more than bookkeeping entries. Indeed, those sales may have been nothing more than a few press releases. See what is, as far as GATA knows, the only attempt to address these issues journalistically with the IMF:

http://www.gata.org/node/8052

2) In its announcement the IMF says again that its supposed gold sales will fit comfortably within the annual quotas set by the Central Bank Gold Agreement. That's because the signatories to that agreement -- the Western European central banks -- stopped selling gold last year. Since the Western European central banks are not selling, the IMF gold sales are a hint that any gold now being dishoarded is coming straight from U.S. gold reserves. The IMF is headquartered in Washington, the United States has a de-facto veto on its operations, and there can be little doubt anymore that the United States is operating surreptitiously in the gold market, the Federal Reserve having acknowledged last September that it has at least contemplated such intervention via gold swap agreements with foreign banks:

http://www.gata.org/node/8192

3) The rationale for the IMF's supposed gold sales -- to raise cash for its operations helping (that is, expropriating) poor countries -- is ridiculous on its face. The IMF is the issuer and custodian of the world's supreme money, Special Drawing Rights (SDRs), and in just one afternoon last year the IMF conjured $250 billion of them into existence:

http://www.imf.org/external/np/sec/pr/2009/pr09264.htm

By comparison, the first 212 tonnes of gold supposedly sold by the IMF last year raised only $7 billion, or less than 3 percent of the money created by mere conjuring:

http://www.bloomberg.com/apps/news?pid=20601087&sid=alOoEXinykfo&pos=5

In such circumstances gold is not sold to "raise money"; it is sold to suppress the price of a currency that competes with fiat currencies and, when traded freely, is a measure of their debasement.

4) That is why, as Jim Sinclair and others have noted many times, official gold sales correspond with rising gold prices, not falling gold prices. Official sales are manifestations of central banking's controlled retreat when money and credit creation have gotten out of hand relative to the gold supply and gold's price is threatening to explode and make a scene very embarrassing to governments and central banks. The last decade has been a time of massive Western central bank gold dishoarding, probably a time of cash settlement of central bank gold leases that could not be settled by recovery of the borrowed metal without exploding the gold price, and during this time gold has risen from $250 to more than $1,000 per ounce:

http://www.kitco.com/charts/popup/au3650nyb.html

If central banks were not on the desperate defensive with gold, how, amid all that official gold selling, could the gold price have quadrupled?

No doubt some gold holders and traders will be duly frightened out of their gold by the IMF's latest announcement, and that will be discouraging for those who remain gold investors. But if this gold "sale" turns out like the others over the last 10 years, before long the gold price will be higher still.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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IMF to Begin On-Market Sales of Gold

International Monetary Fund Press Release
Wednesday, February 17, 2010

http://www.imf.org/external/np/sec/pr/2010/pr1044.htm

WASHINGTON -- The International Monetary Fund (IMF) today announced that it will shortly initiate the on-market phase of its gold sales program. This is the second phase of the total sale of 403.3 metric tons approved by the Executive Board in September 2009 (see Press Release No. 09/310). The first phase was set aside exclusively for off-market sales to official holders. A total of 212 metric tons was sold during this phase, comprising sales to the Reserve Bank of India (see Press Release No. 09/381), the Bank of Mauritius (see Press Release No. 09/413), and the Central Bank of Sri Lanka (see Press Release No. 09/431).

The total amount remaining to be sold is 191.3 metric tons. In accordance with the priority of avoiding disruption of the gold market, the on-market sales will be conducted in a phased manner over time. This follows the approach adopted successfully by the central banks participating in the Central Bank Gold Agreement. Participants in the agreement have noted that the fund's sales can be accommodated under the agreed ceilings of 400 tons annually and 2,000 tons in total during the five years starting on September 27, 2009. The initiation of on-market sales does not preclude further off-market gold sales directly to interested central banks or other official holders. Such sales would reduce the amount of gold to be sold on the market.

The IMF will continue to provide regular updates on progress with the gold sales through its normal reporting channels.

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