Arctic Goldfinger

The International Monetary Fund (IMF) and its cousin, the World Bank, are remnants of the now-collapsing U.S. Dollar-based monetary system that was created at the end of World War II. The U.S. emerged from the war as the world’s greatest power and was in a position to dictate a monetary system that was based on its currency. The U.S. Dollar was backed by gold until 1971 when President Nixon put that to an end. Since then the dollar has been backed by nada.

The IMF is a bloated useless remnant of a financial aid bureaucracy that has largely been rejected by the third-world countries that it was supposed to help. It has grown bigger and bigger as it has done less and less and has found itself, in recent years, begging for money from the world’s financial powers. The IMF owns three tons of gold that were contributed to its capital and the IMF has been begging for years to sell some in order to keep itself afloat. And for years that idea was rejected, that is, until now.

It was reported by Reuters today that the G-7 nations have approved gold sales by the IMF under an agreement that will be finalized in April. I am going to assume for the sake of this discussion that the gold sales will actually take place. Among other formalities, it requires the approval of the U.S. Congress. That is hardly a sure thing with a Senate Majority Leader from a major gold producing state (Nevada), but I will assume nevertheless that the sales will go through.

Will those sales depress the gold price? Maybe. Does that make any difference in the long run? No. The IMF gold is a matter of common knowledge, and, for a long time, and has been factored into the market’s thinking as to what an ounce should be worth. Therefore no new gold is involved, but just old gold (and almost all gold is old gold) will be moving from one set of hands to another. An increase in supply ordinarily will drive down any price. But the potential worldwide demand for gold is vast. Every single depreciating dollar on this planet is a candidate for conversion into gold.

The threatened sale of government gold has hung over the gold market for decades. My feeling these days is that they should just go ahead and sell it. I will take my chances on the market reaction to such a move. As I have said in earlier posts, I (and others) believe that governments have much less gold to sell than they want us to think. As for the gold that they have, let them go ahead and dump it. Gold is money and paper is paper. If they want to go gold-free then good riddance.

The IMF sale is just one more element in the concerted multi-year plan for gold price suppression. As least the IMF will do better for itself than Gordon Brown did for Britain when he dumped half of Britain’s gold for peanuts. But I am certainly not attributing any wisdom to the IMF since they would have happily sold it long ago if they were allowed to. Now that they can sell it they will. And my reaction is “go ahead, make my day.”