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China Should Buy All IMF Gold Says "Father of the Euro"

Commodities / Gold & Silver Oct 20, 2008 - 08:47 AM GMT

By: Mark_OByrne

Commodities Gold has rallied 2.5% this morning after falling some 8% last week as the “dash for cash” and the deleveraging of the international financial system gathered pace. In the process gold gave up most of the gains of the last 5 weeks in just one week. Gold was trading at some $740/oz on September 11 th and subsequently surged to over $924/oz as Lehman Brothers collapsed and the global financial crisis deepened.


Gold is wrongly being treated as just another commodity akin to pork bellies or lead. All paper assets are under pressure and have been sold mercilessly in recent weeks, particularly equities and commodity futures contracts. However, shortages in the gold and silver bullion market are intensifying and will have been made worse by last week's falls.  They are nearly no sellers and nearly all buyers and buyers are waiting for gold to go a lot higher before they will consider selling. Many realize that the US and global economy is on the verge of a sharp recession and thus realize the importance of staying diversified.

Prices and premiums for bullion coins and bars are increasing on a weekly and sometimes daily basis showing that investors and savers internationally are seeking the tangibility of physical gold bullion in their hand rather than the paper promise of a futures contract.

Similarly, central banks internationally do not buy futures contracts or gold in a leveraged paper format rather they own and take possession of physical gold  bars in the form of London Good Delivery Bars (400 ozt) stored in government owned central bank vaults.

Those who question gold as a safe haven asset remain uninformed of the extremely bullish supply, demand fundamentals in the precious metals markets. They also are uninformed of financial and economic history and how gold has and will always act as a safe haven in very uncertain economic times such as the 1930's, 1970's and today. They also wrongly believe that gold is simply just another commodity and do not understand our present monetary system and how gold remains the safe haven currency of choice and asset of last resort of central banks internationally.

China Should Buy All IMF Gold Says "Father of the Euro" Robert Mundell
Robert Mundell, the Nobel Prize-winning economist from Columbia University who is regarded as inventor of the euro ( http://www.robertmundell.net ) told the annual fall dinner meeting of the Committee for Monetary Research and Education (the CMRE) in New York that China, with its huge dollar surplus, has a great interest in buying gold to hedge its dollar exposure but is unlikely to do anything disruptive to the world economic order.

Mundell proposed that if the International Monetary Fund really does sell its gold, as is occasionally proposed China should purchase all of it. Since Mundell is officially an adviser to the Chinese government, presumably it already has heard this suggestion from him.

Some such as the Gold Anti Trust Action Committee (GATA) have questioned whether the IMF actually has all the gold they claim to have and claim that much of the IMF gold may already have been leased out and or sold into the marketplace and may be double accounted for.

The IMF holds 103.4 million ounces (3,217 metric tons) of gold at designated depositories. The IMF's total gold holdings are valued on its balance sheet at SDR 5.9 billion (about $9.3 billion) on the basis of historical cost. As of today, the IMF's holdings amounted to $82.9 billion (at current market prices of $802/oz).http://www.imf.org/external/ np/exr/facts/gold.htm

China now has nearly $2 trillion of US dollar denominated  bonds and treasurys and the IMF gold holdings is worth some 4% of the Chinese currency reserves. This is very bullish for the gold market as the Chinese have less gold as a percentage of reserves than the Federal Reserve, ECB and European central banks which remain the largest holders of gold.

Especially, as governments around the world have committed more than $3.2 trillion to the cause of bailing out troubled banks and billions are being injected into the global financial system on a daily basis. This shows how small the gold market remains vis-à-vis China's currency reserves and the entire global currency and bond markets which are huge (in comparison to the tiny gold market) and growing rapidly on a daily basis.

Contagion in the financial markets and US dollar vulnerability are and will bolster gold's reputation as the central monetary anchor within the international monetary system.

By Mark O'Byrne, Executive Director

Gold Investments
63 Fitzwilliam Square
Dublin 2
Ireland
Ph +353 1 6325010
Fax  +353 1 6619664
Email info@gold.ie
Web www.gold.ie
Gold and Silver Investments Limited
No. 1 Cornhill
London,
EC3V 3ND
United Kingdom
Ph +44 (0) 207 0604653
Fax +44 (0) 207 8770708
Email info@www.goldassets.co.uk
Web www.goldassets.co.uk

Gold and Silver Investments Ltd. have been awarded the MoneyMate and Investor Magazine Financial Analyst of 2006.

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Gold and Silver Investments Limited hope to inform our clientele of important financial and economic developments and thus help our clientele and prospective clientele understand our rapidly changing global economy and the implications for their livelihoods and wealth.
We focus on the medium and long term global macroeconomic trends and how they pertain to the precious metal markets and our clienteles savings, investments and livelihoods. We emphasise prudence, safety and security as they are of paramount importance in the preservation of wealth.

Financial Regulation: Gold & Silver Investments Limited trading as Gold Investments is regulated by the Financial Regulator as a multi-agency intermediary. Our Financial Regulator Reference Number is 39656. Gold Investments is registered in the Companies Registration Office under Company number 377252 . Registered for VAT under number 6397252A . Codes of Conduct are imposed by the Financial Regulator and can be accessed at www.financialregulator.ie or from the Financial Regulator at PO Box 9138, College Green, Dublin 2, Ireland. Property, Commodities and Precious Metals are not regulated by the Financial Regulator

Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. Past experience is not necessarily a guide to future performance.

All the opinions expressed herein are solely those of Gold & Silver Investments Limited and not those of the Perth Mint. They do not reflect the views of the Perth Mint and the Perth Mint accepts no legal liability or responsibility for any claims made or opinions expressed herein.

Mark O'Byrne Archive

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