The I.M.F. In the News

by Rob Kirby, Kirby Analytics. May 21, 2007

This past week saw the International Monetary Fund [I.M.F.] publicly grousing about the sorry state of their finances.

LONDON (Reuters) - The International Monetary Fund is still considering whether to sell 400 tons of its gold stocks to help plug a widening income shortfall, the head of the global lender, Rodrigo Rato, said on Monday.

This same Reuters article pegged the I.M.F.'s income shortfall at $165 million for 2007 and an anticipated widening gap of 214 million projected for 2008. The stated reason for the income shortfall,

"..demand for IMF financial assistance has almost dried up.."

Rumors of large scale I.M.F. gold sales are not new. Political do-gooders of different nationalities have been lobbying for various causes over the past few years – all seeming to require the "pre-announced" divestiture of large amounts of I.M.F. gold – as demonstrated by Great Britain's Gordon Brown in this 2005 effort:

Gordon Brown Proposes Revaluation of IMF Gold Reserves to Fund Third World Debt
3rd February in Parliament
Third World Debt Reduction
Brown wants debts that cost the world's poorest nations -- mostly African -- $39 billion a year wiped out and is pushing for more even-handed trade rules and new long-term aid.
One of the ideas floated by Brown is revaluing part of the International Monetary Fund's gold reserves to finance debt write-offs for 27 of the world's poorest countries.

Because annual global gold production only runs in the 2,500 – 2,600 tonne level – threats of additional supply in the magnitudes often bandied about regarding I.M.F. stocks – like 400 tons – have historically tended to "stifle" a sharply increasing gold price or at times, even send the price plummeting.

Gold bugs often claim that "threats" of I.M.F. gold sales are but one method employed by financial elites to keep the price of gold suppressed [rigged] at an artificially low level.

Gold Is A Political Commodity

As my good friend Rhody pointed out to me this past week,

"The IMF (along with the World Bank) are entities that were 'attached' to the Bretton Woods Monetary Agreement in 1944 over the protests of Lord Keynes. The funding of the IMF comes from the G8 member banks who allocate [pledge] 3000 tons of their gold for IMF backing. So, the 3000 tons of I.M.F. gold is, in fact, a form of double counting of central bank gold reserve assets. In a very real sense, the IMF does not own this gold as it needs the permission of the real owners to sell it, particularly the US which has provided 85% of the gold."

Isn't it amazing how the words double and counting tend to "pop-up" like toad stools whenever one mentions gold and Central Banking?

One should also not overlook the REAL REASON why demand for I.M.F. financial assistance has "dried up." It's because the world is awash in liquidity. Countries have repaid their I.M.F. loans early in many instances owing to the fact that Central Banks around the world are printing money like bandits – acting in their own mercantilist self interests – to prevent their currencies from appreciating too rapidly versus the U.S. Dollar so their export industries remain somewhat intact.

With currencies around the world being debased – en masse – why would ANYONE, logically, want to sell GOLD?

Anyhow, Rhody went on to point out that the I.M.F. is proposing the sale of 400 tons worth of gold [1 tonne = 35,274 ounces] valued at more than 9 billion dollars to meet a current shortfall of 165 million [projected to rise to 214 million next year].

35,274 x 400 x 655.00 per ounce = 9.24 Billion

Well folks, 9.24 billion dollars invested at 5% [which is HIGHLY achievable] would generate annual revenue of MORE THAN 460 MILLION.

Does this make any sense?

460 million is far in excess of the amount that the I.M.F. even "claims" to require.

So, what do you all suppose the real reason is for the I.M.F. wanting to sell 400 tons of gold?

Any guesses?

My friend Rhody thinks that ANY business or organization that sees its trade decline in the order of that which the I.M.F. has experienced � should do whatever is required to downsize, streamline and CUT COSTS if their business is declining.

I agree.

Today's Market

Overseas equity markets began the week on a positive note with Japan's Nikkei Index adding 157 points to close at 17,556. North American markets ended the day mixed with the DOW giving up 13.60 to 13,542.90, the NASDAQ gaining 20.34 to 2,578.79 and the S & P picking up 2.35 to close at 1,525.10. NYMEX crude oil futures gained 1.30 to close at 66.24 per barrel.

Interest rates were modestly higher with the benchmark 5 yr. note finishing the day at 4.71% and the 10 yr. bond ending the day at 4.79%.

On foreign exchange markets, the US Dollar Index gained .19 to 82.30.

Precious metals recovered from early losses with COMEX gold futures ending the day up 2.00 to 664.10 per ounce while COMEX silver futures added .14 to close at 13.13 per ounce. The XAU Index was ahead 1.67 to 138.42 while the HUI added 2.18 to 330.77.

With no economic news of note due out tomorrow � I'd like to wish you all a pleasant evening!

Rob Kirby

Contact Information

Rob Kirby | Proprietor, Kirby Analytics Newsletter - Proprietary Macroeconomic Research
Toronto, Ontario, Canada | Observations | FSU Editorials | E-mail