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IMF Follows In Gordon Brown's Footsteps

October 3, 2009

I am of the view that the world craves leadership. Not the kind that threatens or declares wars, not the kind where words do not match actions and definitely not the kind where bad decisions are repeated in the hope of a different outcome. As long as leaders and international institutions deny gold and silver their rightful position in the world's financial architecture, we will continue to be denied the only real financial foundation that is capable of returning our world to normality and stability. As a result, leadership will flounder and lead us to disaster after disaster.

It is for this reason that repeated incidents of questionable behaviour cannot be brushed away as coincidental. Substantial sales of gold by the British (courtesy of Gordon Brown) and the Swiss amongst others are not unconnected. The folly of those decisions however is constantly highlighted with monotonous regularity.

Today I was reading the IMF's release on its pending sales of gold. The main points are as follows:

  • In January 2007 the Crockett Committee reported on the sustainable long term financing of the IMF and recommends a level of gold sales.
  • In April 2008 the Executive Board endorsed the new income model as well as the level of gold sales.
  • On September 19, 2009 the IMF's Executive Board approved gold sales strictly limited to 403.3 metric tons, representing one eighth of the Fund's total holdings.

Does anything raise your consternation? If not, then let me explain with the use of three facts:

Price of Gold (January 31, 2007)     $652.30

Price of Gold (April 30, 2008)     $877.20

Price of Gold (September 19, 2009)     $1,006.50

In the 15 months from January 2007 to April 2008 the price of gold increased by 34.4% or 27.5% on a yearly basis. From April 2008 to September 2009 the price increased by a further 14.7% or 10.3% on a yearly basis. The general trend also manifests itself with other key currencies.

The conclusion is clear. Had the IMF acted on its intentions in January 2007 or April 2008, it would have made a massive error unless it was intending to start a credit card company charging 30% per annum plus merchant fees.

The IMF clearly does not qualify as investment adviser of the year so why does it persist? There are a number of possible explanations to which you will no doubt add others:

  • They are trying to weaken the price of gold despite assurances to the contrary.
  • They are trying to manoeuvre the 403.3 tonnes into the hands of the Chinese to appease them at least temporarily in exchange for their increasingly useless US dollars.
  • The IMF is insane (highly unlikely but still possible as committees are notorious for producing nothing of value)
  • To the above I would like to add a fourth possibility which may also seem unlikely. If I was the USA I would manoeuvre to buy the gold myself. That's right. If I have the power to print dollars and hand them over for real gold, the temptation would be too great to resist.

As unlikely as this may seem, it does make sense. If the cost of printing a few billion dollars is minute and it can serve to deny the Chinese the opportunity of making their treasury more moth-proof, then why not? If Fort Knox has been denuded over the years then this is an opportunity to plug the hole at least in part.

The IMF would clearly have been ahead had it used its gold stockpile as security to borrow at low rates from Japan (for instance) and simply on lend to IMF clients.

Who knows what the truth is? Perhaps some FOI request decades from today will reveal the true purpose but until then we can only join dots as we try to navigate this unholy mess.

There will no doubt be many attacks on gold and silver as we go forward. If this scares you the solution is simple.......sell and then be prepared to spend the rest of your life in regret. Strong words perhaps, but history to date is on my side.

Rest assured there is really no such thing as a gold bug, just a growing number of us who are allergic to paper.


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