Back in April I tried to engage the IMF in a dialogue about its gold and I
had an exchange by e-mail with an IMF publicist, Conny Lotze.
My first question was: "Your Internet site says the IMF holds 3,217 metric
tons of gold 'at designated depositories.' Which depositories are these?"
Conny Lotze of the IMF replied, but not specifically. She wrote: "The fund's
gold is distributed across a number of official depositories," adding that the
IMF's rules designate the United States, Britain, France, and India as
My second question was: "If you'd prefer not to identify the depositories for
security reasons, could you at least identify the national and private
custodians of the IMF's gold and the amounts of IMF gold held by each?"
Conny Lotze replied, again incompletely: "All of the designated depositories
My third question was: "Is the IMF's gold at these depositories allocated --
that is, specifically identified as belonging to the IMF -- or is it merged with
other gold in storage at these depositories?"
Conny Lotze replied, still not very specifically: "The fund's gold is
properly accounted for at all its depositories."
My fourth question was: "Do the IMF's member countries count the IMF's gold
as part of their own national reserves, or do they count and identify the IMF's
Conny Lotze replied a bit ambiguously: "Members do not include IMF gold
within their reserves because it is an asset of the IMF. Members include their
reserve position in the fund [the IMF] in their international reserves."
This sounded to me as if the IMF members are still counting as their own the
gold that supposedly belongs to the IMF -- that the IMF members are just listing
the gold assets in another column on their own books.
My fifth question was: "Does the IMF have assurances from the depositories
that its gold is not leased or swapped or otherwise encumbered? If so, what are
Conny Lotze replied: "Under the fund's Articles of Agreement it is not
authorized to engage in these transactions in gold."
But I had not asked if the IMF itself
was swapping or leasing gold. I
had asked whether the custodians
of the IMF's gold were swapping or
This prompted me to raise one more question for Conny Lotze. I wrote her: "Is
there any audit of the IMF's gold that is available to the public? I ask
because, if the amount of IMF gold held by each depository nation is not public
information, there doesn't seem to be much documentation for the IMF's gold, nor
any documentation for the assurance that its custody is just fine. Without any
details or documentation, the IMF's answer seems to be simply that it should be
trusted -- that it has the gold it says it has, somewhere."
And Conny Lotze ... well, she never wrote back to me again. After all, I had
uttered the dirtiest word in government service: A-U-D-I-T.
That the International Monetary Fund refuses to account for the gold it
claims to have should be potential news for the financial media. It would be
nice if the financial media pursued that issue before their next attempt to
scare the gold market with stories about IMF gold sales.
But even if such sales by the IMF should be undertaken, they might not be
much for gold investors to worry about. For a month ago I happened to attend in
New York City the annual fall dinner of the Committee for Monetary Research and
Education, and it had an unscheduled speaker, Columbia University Professor
Robert Mundell, who, as you may recall, won the Nobel Prize in economics in 1999
and is regarded as the father of the euro. Through great luck I got to sit next
to Mundell on the platform and so heard him clearly as he went out of his way to
join the discussion of my topic, gold. Mundell remarked that if the IMF sold any
gold, China should buy all of it to diversify its foreign exchange reserves.
Since Mundell is a consultant to the Chinese government, the Chinese government
surely heard this advice from him long before the CMRE meeting did.
You can do a lot of market rigging when you can print legal tender to
infinity, pass out huge amounts of it to your friends, and induce them to use
derivatives to siphon speculative demand for real stuff away from actual
possession of that real stuff. But in the end printing legal tender and
contriving promises to deliver real stuff don't produce real stuff. With
infinite legal tender and derivatives you can push the futures price of a
commodity below its production costs and below its free-market price for a
while, but you risk causing shortages. And of course that's what we have in gold
and silver right now -- falling prices for the paper promises of metal even as
little real metal is to be had and the spread between the futures price and the
real price grows. Last night a GATA supporter in Bangkok, Thailand, who long has
been in the silver business e-mailed me that real silver there is prices at $18
per ounce for orders of 1 kilo or more and $23 per ounce for smaller or ders.
Our friend in Bangkok added that when he shows silver dealers there the New York
silver futures price on the Internet, they laugh at him. Shortages can have
various causes but generally they are their own cure. When shortages persist,
they well may result from government intervention in markets.
Of course prices always have been determined to a great extent by the volume
and velocity of money and credit, and so the creation of money and credit is,
all by itself, inevitably an intervention into markets. But lately money and
credit have been disappearing and reappearing in a flash in the billions and
trillions. How can so much come and go so quickly? Maybe because what passes for
money and credit today is a bit too ephemeral, having little connection to
reality and a lot of connection to politics.
That is why market advice today is more doubtful than ever: Markets have
become more politicized than ever. Supply and demand and profitability are no
longer the primary determinants of markets. No, the primary determinant of
markets is now politics:
Which countries will cut interest rates the
most? Which countries will subsidize their banks and corporations the most?
Which countries will get IMF and World Bank loans? Which countries will be given
unlimited currency swap lines and which won't? Which companies will get bailed
out and which won't? How much more dishoarding of gold will central banks do to
keep the price down, and which central banks? When will central banks run out of
gold or decide to stop spending it this way? Most importantly, when will the
world decide to stop financing the wild irresponsibility of the United States by
lending the U.S. money that can never be repaid?
These are all political questions, and only political decisions will answer
them. Some of these questions may be answered as soon as this weekend at the
international conference in Washington. Answers to some of the other questions
probably will be conveyed in advance to certain insiders -- like the financial
houses that serve as the market agents of the central banks -- and those
insiders will get richer. As good as this conference is, you will not be hearing
from any of those insiders here.
But we may gain some confidence from politics too, since we know that
governments are no longer shy about intervening in the markets and since central
banking was invented precisely to inflate, to avert debt deflation, to devalue
the currency when that is deemed necessary or convenient by those in power --
which is most of the time. We know that the world is now drowning in debt, and
in a research paper published in May 2006 a British economist, Peter W. Millar
-- founder of Valu-Trac Research in London, formerly an executive with the Abu
Dhabi Investment Authority -- forecast that to avert debt deflation and to
increase the value of their monetary reserves, central banks would need to
increase the value of gold by at least 700 percent and maybe by as much as 2,000
percent. This could be done easily, for to increase the value of their monetary
reserves central banks need only to stop selling and leasing gold and to stop
subsidizing the sale of gold derivatives by their ag ents, the financial houses.
Revalued high enough, gold could cover all government debts and let the world
start over again.
Millar kindly has given GATA permission to post his research paper at our
Internet site, and you can find it here:http://www.gata.org/files/PeterMillarGoldNoteMay06.pdf
When Millar made his forecast about such an upward revaluation of gold -- 2
1/2 years ago -- gold had just reached $700 per ounce, not far from where it is
now. Multiplied by 700 percent, that would mean a gold price of about $5,000 per
ounce. Multiplied by 2,000 percent ... well, if that happens, we may be able to
afford to hire someone to do the math for us -- if, of course, those of us who
do not live in free countries like China and Russia are allowed to keep our
gold. But that is still another political question.
* * * Help Keep GATA Going GATA is a civil rights and educational organization based in the United
States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail
dispatches are free, and you can subscribe at http://www.gata.org/.