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IMF Firefight For Missing Gold

Commodities / Gold and Silver 2011 May 27, 2011 - 02:10 PM GMT

By: Andrew_McKillop


Best Financial Markets Analysis ArticleThe arrest of former IMF head Strauss-Kahn came at a key moment in this secretive entity's  emergency bailout operations for Greece, Ireland and Portugal, and IMF advanced action in several other Eurozone-17 countries facing similar sovereign-debt crises. Greece, tottering near outright restructuring of its massive and fast-growing debt, as interest rates on its bonds continue to rise, is in renewed crisis and most economists expect what is politely called a reprofiled debt rescue package for the country. The IMF committed between a third and a quarter of the € 110 billion ($ 155 billion) in already-agreed aid to Greece, and has engaged to put up at least a third of the partly-set € 78 billion rescue package needed for Portugal.

European officials said they had expected Strauss-Kahn to arrive in Brussels on Monday 16 May to whip up European Union government support, starting with trade surplus Germany to more bailout money for Greece - covering the not so long term future of 2012 and 2013—and to bargain with "DSK" on what the EU and Europe's central bank, the ECB, would poney up in return for further IMF help.

Strauss-Kahn's disappearance to Rikers Island prison in New York surely made things more difficult on the Greek negotiations, with the fear word being contagion if there is delayed action.

Behind all this, looms the shadow of missing IMF gold.

To be sure, government friendly and middle range media has obediently focused a subject almost as fascinating as ADN sperm samples in the Manhattan Sofitel hotel, and swivelled attention to the succession struggle inside the IMF, with the IMF's John Lipsky named acting managing director to replace Strauss-Kahn, who formally resigned May 18. Lacking his predecessor's clout and anyway himself on the way out, Lipsky only reinforces conventional wisdom  that the IMF under Mr. Strauss-Kahn played a stabilizing role inside and between debt-and-deficit Europe on one hand, and the few less-troubled economies of the continent led by the German mercantilist trade surplus machine of chancellor Angela Merkel.

The key bargaining chip for the IMF, in Europe, was German angst concerning the highly overvalued euro, which is preferred by Merkel and several other EU leaders to the inflation surge which would come hard on the heels of its abandonment. According to IMF Web sites, Germany ranks second-only to the USA in official gold reserves, relative to No. 3, the IMF.

Strauss-Kahn's sudden disappearance from the fund was in fact only the fast-forward to his near-certain departure, later this year to stand in the French presidential race. Polls in France before his alleged hotel room struggle with a 1.80-metre lady not understanding France's tradition of droit de cuissage, a special form of French liberty, placed the ex-IMF chief as a near shoe-in winner. Yet the leadership struggle has already set China, and possibly but not certainly India against the European-US-Japanese axis of hyper-debt countries.

The G8 Deauville meeting, hosted by France's Nicolas Sarkozy and starting today will most surely try to cement that axis a little further and stronger, to be sure through off-stage encounters. The question whether the IMF might break with the past and appoint a candidate from an emerging economy remains if not on the table, then under it.

Much more secretly, and not surely figuring in the discreet corridor chats, the IMF's missing gold will soon be concerning the bullion market.

Inside the IMF, the (very big) surprise departure of Strauss-Kahn will in fact only cause ripples and no major governance challenge for the IMF, except if the leadership struggle turns into a sudden fast-forward to the real world where the leadership struggle shadows a real economy struggle between deficit-countries and creditor-countries, which is now increasingly likely.

When this real world, real economy conflict exits from the ultra-discreet corridors of luxury hotels housing G8 and G20 conference participants, the results could be dramatic. The results will be directly measurable by gold prices and cross-currency rates, and potential reflex moves in the WTO, as global mercantilism becomes a headline theme in a sharpened global BOP crisis, where BOP means Balance of Payments.

IMF official claims as of May 25, 2011 are this entity controls or holds about 2900 tons of gold, ranking it third by world central bank official and declared reserves, after the USA and Germany. This stash is at least, or more than 11 percent of world total central bank stocks - officially declared and reported to the World Gold Council, that is. For several years, and especially under Strauss-Kahn, the IMF has urged that willing governments utilize a modest portion of their existing SDR allocations inside the IMF to capitalize so-called third-party financing entities. The long-term goal, sometimes almost describe outright in footnotes to IMF downloadable documents, most surely includes, or included the forced introduction of a new single world reserve currency, to be sure organized and coordinated by the IMF.

Non-official but coherent and not denied information on IMF gold sales  in year 2010 suggest this entity sold, through the Basle-based Bank for International Settlements and the six major bullion banks including Barclays, ScotiaMocatta and JPMorganChase, a total of about 403 tons. Conventional wisdom says this is possible, again, in 2011. Coherent but hard-to-verify information suggests that as of early May 2011, the IMF was unable to mobilize  sufficient physical gold to ensure the sale of more than about 160 - 170 tons for the remaining months of 2011.

The missing gold, already sold (or of course possibly stolen by Martians), does not in any way transparently figure in official data, but it most surely figured on the piccolo libretti that Mr Strauss-Kahn toted around, at least when he was in horizontal posture and not too close to unwary females. To be sure this was in the great tradition of leading financiers such as Bernardo Provenzano, until his sudden and surprising, but well arranged fall from grace on April 11, 2006. The missing amount in question is around 230 tons. Intelligent eight-year-olds can tell us a metric ton weights about 32, 150.477 Troy ounces, and each one of them fetches about $ 1500. At present.

The official Strauss-Kahn line on what could be done with mobilized gold was of course nicely adapted to great causes of our time, outside debt firefighting. The mobilized gold could be used to play global markets, offering bonds on international capital markets backed by SDR reserves, that the IMF would print and allocate as needed when all parties agreed. The most-recent example, dating from late 2009 and early 2010, and a special initiative of Strauss-Kahn, used the underlying security of the fight against climate change. Proceeds from mobilization of resources would back private investment in climate-mitigation projects, such as nuclear power plant and biofuel financing. in low-income developing countries. At the time (2009-2010) this strategy was claimed as able to mobilize up to $100 billion at little or no budgetary cost for contributing governments.

The link with IMF gold was only included in the footnotes: any limited budgetary costs could be offset by using excess proceeds from IMF gold sales. As we know, these attained about 403 tons in year 2010.

Without Strauss-Kahn and with an awfully degraded image not just of this regular-issue, high on the hog, expenses-plus French politician but also of old-style mobilizers like awe-inspiring images of polar bears paddling in slush because CO2 destroyed their lifestyle, it is unsure that throwing tons of swapped and hocked gold at "power elite memes" would past muster, a second time around. This great cause is likely terminated, almost as certainly as Strauss-Kahn's presidential hopes in France.

The gold sale program of the IMF is to be sure less secret than its action to recycle, brighten and even sparkle clean off-white, grey and outright black-colored capital flows, especially from small island tax haven states and low-income countries, such as Nigeria and Bangladesh. IMF gold sales are secret by definition, and this traditional secrecy is more than useful if the gold isnt there. With Strauss-Kahn's disappearance and the resulting IMF temblor, markets will increasingly test the credibility of central bank surplus/deficit profiles relative to their political obligations to create money and lower interest rates to fight rising debt - if for no other real reason.

Eyeing the list of non-Western candidates for new head of the IMF, from outside the hyper-debt axis of USA-Europe-Japan, potential contenders include former Brazilian central bank President Arminio Fraga and Mohamed El-Erian, head of investment-management company Pimco. Both of them are described as close to Strauss-Kahn and well positioned to recycle gold as hot as the libertine clubbers that "DSK" was so fond of in Paris, in his socialist heydays, already recycling resources for the Party. China's broadside rejection of the French Lagarde candidate, on rational grounds including her almost perfect ignorance of economics, may be tempered by the awe-inspiring implications of the euro-zone sovereign debt crisis, coming to a boil again over Greece's fresh funding woes. Finding the lost or missing IMF gold will certainly influence jockeying on who gets the IMF top job, regardless of what the U.S. does with the presidency of the World Bank.

By Andrew McKillop


Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2011 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2022 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


28 May 11, 11:53
What Secret?

Far from being in any way hidden or concealed - let alone "missing" - the entire saga of the IMF's disposal of the single 403 tonne odd-lot of gold, which it received as part-paynent for a loan in the 1990s, was trumpeted and reported ad nauseam for years. There is even a very clear description of the disposal process on the IMF's own website.

It took years of negotiation to get agreement to sell it; the discussions were widely reported and the sales pre-announced and openly acknowledged. The Indian Central bank bought 200 tonnes outright @$1045, with smaller sales to other sundry countries. The remaining 190-odd tonnes was sold on to the market at around 20-30 tonnes a month until it was all accounted for by Dec 2010.

The rest of the "IMF's" gold holding is an accounting entry; as it still belongs to its original members and is not available for disposal.

There are many facets of the international gold market that do warrant serious investigation; but attempting to invent a completely bogus mystery when all the facts are so easily available is nothing but sloppy journalism.

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