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Politics : Dutch Central Bank Sale Announcement Imminent?
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To: GVC who wrote (6760)7/7/1999 1:13:00 PM
From: banco$   of 81190
 
Letter sent to applicable members of U.S. Congress:

Re: Blocking the Proposed IMF Gold Sale/HIPC Initiative;
Ending the Gold Carry Trade

Dear Representative/Senator....,

I am writing to request your vote against any sale of International Monetary Fund (IMF) gold bullion reserves as proposed in the Highly Indebted Poor Countries (HIPC) initiative. The IMF gold is pledged by member countries such as the United States of America, and any outright sale must be approved by the U.S. Congress.

The proposed gold sale should be rejected primarily because it will significantly harm the countries it is intended to 'assist.' Many of the subject HIPC states are gold producers, and the gold sale can only cause further harm to a gold market that is already very weak; gold is currently selling at a 20-year low.

Producer nations are already struggling under the weight of gold market manipulation by central banks and hedge funds that borrow gold nearly free from central banks and sell it in the open market in order to speculate and leverage the proceeds. This practice is known as the "gold carry trade" similar to the "Japanese yen carry trade" which resulted in the largest weekly movement of Japanese yen against the U.S. dollar in 25 years when the scheme failed in 1998 -- both a source of essentially free capital to speculators -- the result of which is destabilization of global markets and widespread market manipulation. How about taxing hedge funds on their below market rate loans and use those taxes to fund the HIPC initiative? Why should speculators get free money while the HIPC states and everyone else must pay at least the prime rate charged to banks by the Federal Reserve and, in many cases, significantly more than prime rate.

Perhaps the IMF gold sale proposal and recent announcements by the Bank of England to unload half of its bullion reserves via auction are attempts to let speculators off the hook rather than pay market prices in the legitimate gold market to cover their gold carry loans. An estimated 3000-8000 tons of gold is already out on loan by central banks and is actually sold in the marketplace, and speculators who sold the gold cannot cover their loans because the gold is no longer available in those ever increasing quantities. The growing problem of counterparty risk (the inability for speculators to cover their obligation) is so large that a formal inquiry should be launched to ensure the danger does not increase. At the same time, it is inappropriate for governments to cover bad gold loans, bail out speculators or otherwise encourage institutional or government gold sales and further central bank gold lending as all of these practices undermine legitimate and transparent market practices and, of course, further damage the HIPC states' financial viability.

Can you ensure that U.S. bullion reserves in Fort Knox are physically there and are truly available, or have they already found their way into speculators hands via the gold carry trade?

Respectfully,

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