The Old Chestnut - IMF Gold Sales
In 1999 and 2000, the IMF reportedly "acquired" 403 TONNES of Gold through what they call off market transactions. These are accounted apart from the IMF gold amassed as part of the quota imposed on member nations. Unlike this Gold, the 403 Tonnes in question can be sold on the market, but only if nations whose IMF vote totals 85 percent of the total agree. Every year since 2001, there has been talk about the IMF selling this Gold. But the IMF has not been able to do it because they have never managed to get the 85 percent vote required.
The reason for this is simple. The IMF cannot do ANYTHING without the consent of the US for the very simple reason that the US controls (depending on which figure you believe) between 16.5 and 17 percent of the total IMF vote. It always has. Thus, the US has always held an effective veto over any IMF action.
Now, in the wake of what was a damp squib of a G-20 Heads of State summit, the sale of this IMF Gold has raised its head again, just as it does almost every year. On April 2, the Heads of State meeting in London reportedly "approved" the IMF plan to sell this 403 Tonnes of Gold. This is, as the US Treasury was quick to point out, subject to Congressional authorisation. And, of course, the media coverage of the G-20's endorsement of the Gold sales was careful to point out that there was no intention in any of this to affect the markets or (perish the thought) the $US price of Gold. As you know, the spot future Gold price fell almost $US 30 in New York on April 2-3.
In 2008, in the waning days of the Bush Administration, the then head of the US Treasury Hank Paulson announced that the Treasury would seek Congressional authorisation for IMF Gold sales. Amid the frantic stitching up of bailout and stimulus packages and the Presidential election campaign, this was not done, at least not in public. So far, it has not been done by the new Treasury Secretary Mr Geithner either, again at least not in public.
There is a good reason for this. There was a time when the US Treasury DID receive authorisation to sell not only IMF Gold but also US Treasury Gold. This was the now largely forgotten IMF/US Treasury Gold Auction campaign which lasted from late 1976 to early 1979.
In early 1976, the newly established (in 1975) Interim Committee of the IMF decided to set up a Trust Fund to "benefit developing countries." The wherewithal to establish this trust fund was to come from the sale, by auction, of one-third of IMF Gold holdings. The US government and Congress concurred. The first IMF auction was held on June 2, 1976. The $US price of Gold bottomed two months later at $US 102. In April 1978. the US Treasury announced that it was joining the IMF in auctioning Gold. The Treasury auctions began in May 1978 with Gold having almost but not quite regained its December 1974 highs just under the $US 200 level.
Eighteen months later, of course, the $US Gold price had more than quadrupled to $US 850 an ounce. For most people, this entire process in now lost in the mists of history. It has NOT been forgotten by the US government or Treasury though, nor has it been forgotten by the IMF.
The IMF/US Treasury gold sales provided a platform from which the second and biggest Gold bull market of the 1970s took off. More recently, the Bank of England Gold auctions of mid 1999 - early 2002 provided the platform from which the current $US Gold bull market has been established. For many years, the old chestnut of IMF/Central Bank sales are trotted out every time the global monetary and financial system is under pressure. Here they are again. And as has happened every time, the initial reaction is a Gold sell off. Here it is again, albeit a very minor one so far.
The recently concluded G-20 Heads of State Summit achieved NONE of the goals which Mr Obama and the UK Prime Minister Mr Brown were canvassing in the lead up to the London meeting. No concrete proposals for "co-ordinated stimulus packages" by the participating nations were announced. In fact, the whole issue of "stimulus" was politely removed from contention at the meeting. Instead, the great "triumph" was an agreement on a plan to look into tightening up financial regulatory agencies without bringing forward any kind of international overseer. On top of that, there were plans announced to look more closely into the activities of tax haven nations. This is mere tinkering for the sake of being seen to be doing "something". It cannot begin to "solve" any of the problems, because it does not begin to address the cause of the problems.
In the lead up to the Summit, there was some talk about monetary reform, of course. China suggested the gradual takeover of the SDR from the US Dollar as a potential future global reserve currency. Russia even had the effrontery to suggest that Gold might take a place as one of the components of a revamped SDR (Special Drawing Right). Needless to say, neither of these proposals saw the light of day in either the public posturing of the participants or in the official communique.
So this year too, as it has done at or about the date of big international financial get togethers for the past decade or so, another plan has been mooted to sell IMF Gold. $US 403 Tonnes of it. At current $US Gold prices, 403 tonnes could be bought for about $US 11.6 Billion. For any of the top twenty holders of $US "reserves", that is petty cash. It is a ridiculously insignificant sum in comparison to the $US TRILLIONS already spent by governments around the world to "stimulate" their economies and to attempt to re-start the credit-money system.
If the IMF DOES manage to get permission from the US Congress to actually sell the Gold, this would be a signal as big as the one the Fed gave on March 18 when it announced its decision to begin to actively monetise US Treasury debt. Any nation which has gone any distance down that road has destroyed their currency. And in the fiat money era which began in 1971, any actual program of official Gold sales (as opposed to threats of same) has always resulted in time in a HUGE leap in the price of Gold. That's why the US in particular, and especially now, is so reluctant to embark on any type of official Gold sales again.
It will be very interesting to see if the IMF actually DOES sell Gold this time. If it does, look out above for Gold.
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