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Julian  D. W. Phillips

Julian D. W. Phillips

Global Watch: The Gold Forecaster covers the global gold market. It specializes in Central Bank Sales and details, the Indian Bullion market [supported by a…

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I.M.F. Statement Contradicts Sales Drive by Chancellor Brown

The International Monetary Fund issued a statement some time ago, which read as follows: -

"Gold is an undervalued asset held by the I.M.F., and provides a fundamental strength to its balance sheet. Gold holdings provide the I.M.F. with operational manoeuvrability both as regards the use of its resources and through adding credibility to its precautionary balances. In these respects, the benefits of the I.M.F.'s gold holdings are passed on to the membership at large, to both creditors and debtors. The I.M.F. should continue to hold a relatively large amount of gold among its assets, not only for prudential reasons, but also to meet unforeseen contingencies."

Such remains the policy of the International Monetary Fund. It requires an 85% majority of the Members of the I.M.F. for this policy to be changed. The U.S. holds 17.3% of these votes, giving it a veto over such decisions. It seems unlikely that this policy on gold will allow even the real value of these assets to support debt write offs. Such statements surely put the issue to rest.

On the surface, Chancellor Brown, having been responsible for selling half of the United Kingdom's gold, at prices 35% lower than present ones, for the U.S. $, which has since depreciated another 35% against the Euro, seems to have learned little from the experience. Put simply, gold and debt write-offs are two separate issues that should not be joined in this way. It will be surprising if this International Monetary body would want to follow Mr Brown's path.


To gain perspective on this matter, a reminder that Europe's Central Bankers, in 1999, drew up the "Washington Agreement", under the approving eyes of the U.S. [Greenspan in particular] and Japan, so that the world could move away from the belief that Central Banks were determined to sell their gold in the public market places, to one where they gained transparency into Central Bank gold sales. [The cessation of U.S. sales of gold, decades ago and their retention of gold reserves clarifies U.S. Gold Policy]. After all gold forms an integral part of global reserves, used as described by the I.M.F., above. Such a position has been reiterated in the clauses of "Washington Agreement" of 1999 and the 2004 Central Bank Gold Agreement.

In the second agreement enacted last year, the Central Bank Gold Agreement set a ceiling to such sales of gold at 500 tonnes per annum, which to date, seems unlikely to be reached, in the next five years. It is of particular note that the U.K. was not included in the second agreement, having terminated its own sales of gold and seemingly differing with the rest of Europe's Central Bankers on the matter. Indeed, it appears that there is a split between the U.K and the signatories of the 2004 C.B.G.A. on the matter of gold in monetary reserves exists.

Europe's present position on gold sales.

Germany withheld its sales of a scheduled 120 tonnes of gold this year, after the Bundesbank' President had noted that gold was an effective 'counter to swings in the Dollar'. There is nothing to suggest either way, that Germany will be a seller of gold in the future. Switzerland has just completed its scheduled sales of 1300 tonnes of gold, stating that its sales are now complete. Italy has stated it has no plans to sell gold. Whilst France has stated it may sell 600 tonnes over the next 5 years, it would come as no surprise if this policy were changed. As to these nations now agreeing to sell their gold, held by the I.M.F., such a decision would fly in the face of many years of policy discussion on the matter. What is of pertinence is the value the I.M.F. places on the gold held by itself, of $40 per ounce.

I.M.F. Gold Sales or Revaluation of gold held by the I.M.F.

In our article, "I.M.F. Gold - The issues involved", [please contact us at gold-authenticmoney@iafrica.com for a copy] in July of last year, we discussed the issues involved in selling I.M.F. gold. We pointed to the need to revalue I.M.F. gold from the archaic practice of pricing it at $40 per ounce, to market prices, before it could have a meaningful role in the global monetary system. As to the philanthropic gift of the difference in value of $40 and the real value of the gold, being given to poor nations for them to write off their debt, one can only be impressed by such a noble attitude. Cynics readily point to the definition of a true patriot as being, "One who commits you, to his cause" as being applicable to Mr Brown. Certainly, his unrelenting insistence on this line will either irritate or initiate a generous line towards the poor nations. After all, the revaluation of gold from an unrealistic value of $40 an ounce to market value, is hardly a 'windfall profit', merely a correction of past unrealistic attitudes? It would be surprising if anybody, but Mr Brown would see it as such.

It is unlikely that a revaluation of gold held by the I.M.F. will be the means with which debt write-offs will be paid for. The I.M.F. already has extensive systems in place, including the H.I.P.C. initiative [Heavily Indebted Poor Nations], which has succeeded in writing off or down, the bulk of qualifying nations debts. Now in cooperation with the World Bank, through a Grant system, they are doing more still. Should more be required, such avenues would be appropriate. It would be naïve to see the issue as a simple one. Gold must be separated from poor nations debt write-off.

Returning the I.M.F. gold to its rightful owners.

Should the member nations of I.M.F. gold find themselves in disagreement with a decision of the I.M.F. to sell their gold, the possibility of this gold being returned to them, is there. But should this option be used, the damage to the I.M.F. of such a position [a minority objecting to the majority] would produce disunity in the global monetary system, which could prove extremely disruptive.

We expect that the mere possibility of such a disruption, of itself, would persuade the majority not to sell any gold, but at best to revalue it.

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