Gold Forecaster
- Global Watch
I.M.F. past & future
Gold sales - The effects Part 2
Julian D.W.
Phillips
Gold Forecaster snippet
Feb 9, 2007
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latest weekly issue from www.GoldForecaster.com
Last week we looked at the
past sales of gold by the I.M.F. and the past reactions of other
Central Bankers to outsiders pressing them to sell gold for 'budgetary'
reasons. This week we look at the possibility of sales and how
they might be handled, as well as the potential effects on the
gold market.
The committee's key recommendations
involve creating an endowment from 'limited I.M.F. gold sales.
"The limited sale of
the IMF gold should be ring-fenced to exclude further sales and
subject to strong safeguards to limit their market impact. Of
its total stock of 3,217 metric tonnes of gold, the I.M.F. could
sell the gold sold and repurchased in the 1999-2000 off-market
operations. This gold, which amounts to about 400 tonnes, has
an approximate current market value of S.D.R. 4.4 billion ($6.6
billion). Investment of profits from its sale could yield a real
return of some S.D.R. 130 million ($195 million) a year." The reason this particular gold was
defined is that having been sold by Mexico and Brazil, its ownership
can no longer be linked to an individual member, but lies in
the ownership of all the members of the I.M.F. as a whole. Perhaps
the committee felt that the members would not be so attached
to this gold as much as they would their own gold?
But in the unlikely
event that the sales were to come to pass, what would the procedure
be?
The Articles of Agreement
limit the use of gold in the I.M.F.' operations and transactions
as follows: -
Transactions in gold require an 85% majority of total voting
power. The IMF may sell gold outright on the basis of prevailing
market prices, and may accept gold in the discharge of a member's
obligations at an agreed price on the basis of prices in the
market at the time of acceptance.
It does not, however, have
the authority to engage in any other gold transactions, e.g.,
loans, leases, swaps, or use of gold as collateral, nor does
it have the authority to buy gold.
The wording of the recommendations
is critical for the potential modus operandi and these leave
a great deal of scope for interpretation, so the pattern set
by past sales and objections to gold sales by Central Bankers
will guide us to possible future events: -
Past Sales & Objections.
Outflows of gold from
the I.M.F.' holdings occurred under the original Articles of
Agreement through sales of gold for currency, and via payments
of remuneration and interest. Sales of gold for currency were
as follows:
Sales for replenishment
(1957-70).
In the late 1950s and in the 1960s, the I.M.F. sold gold on several
occasions to replenish its holdings of currencies.
Investment in U.S.
government securities (1956-72).
In order to generate income to offset operational deficits, some
gold was sold to the United States and the proceeds invested
in U.S. government securities. A significant buildup of reserves
through income from charges prompted the IMF to reacquire this
gold from the U.S. government in the early 1970s.
South African gold
and mitigation.
In the early 1970s, the I.M.F. sold gold to members in amounts
roughly corresponding to the amounts purchased earlier from South
Africa. It also sold gold in connection with payments of gold
for quota increases by some members, in order to mitigate the
impact of these payments on the gold holdings of reserve centers.
Thereafter the U.S. and
the I.M.F. decided gold's role in the monetary system was to
be considerably lessened. This allowed the $ [the currency of
oil and the new global reserve currency. Subsequent sales of
gold should be seen in that light.
Auctions and "restitution"
sales (1976-80).
The IMF sold approximately one-third or 1,555 tonnes of gold
(50 million ounces) of its then-existing gold holdings following
an agreement by its members to reduce the role of gold in the
international monetary system. Half of this amount was sold in
restitution to members at the then-official price of SDR 35 per
ounce; the other half was auctioned to the market to finance
the Trust Fund, which supported concessional lending by the IMF
to low-income countries. These auctions were oversubscribed
to the extent that the I.M.F. realized their efforts to discredit
gold were not meeting with the success they had hoped for. Hence
these sales were terminated.
Off-market transactions
in gold.
In December 1999, the
Executive Board authorized off-market transactions in gold of
up to 14 million ounces to help finance I.M.F. participation
in the HIPC Initiative, the scheme whereby poor countries debt
would be written off. We cannot find evidence that these sales
actually took place?
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 member 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.
New Sales?
So what of new potential
sales?
Please subscribe to www.GoldForecaster.com
for the entire report.
Feb 9, 2007
-Julian
D.W. Phillips
email: gold-authenticmoney@iafrica.com
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