24 May 2009

A potted history of offical gold price guidance

Gold is the flip side of debt based fractional reserve fiat based systems because it is a financial asset in its own right, the physical embodiment of the work required to extract it that becomes the economic embodiment of the same because of its properties and the fact that its value is intrinsic; not a claim subject to default by economic collapse, the revolt of the serfs or rent strikes or sovereign default. It is an put option on the credibility of dollar hegemony and had not officials put coins in the fusebox, it would have signaled we were in trouble years ago.

Since the invention of agriculture and the city state the real game has been keeping elites mindfull of their duties; addressing the issues of those who do the work and containing the manipulation and misuse of the magical power of abstraction enabled by numbers and writing. The computer network and the spreadsheet and their descendants have enabled vast new abstractions and hubris in the offical money sector but those same technologies are also disintermediating all of the old relationships between institutions and flows. We move to a new order.

Gold and silver are real money and the price locus of the realities of energy and geology as well as money, power and politics.

The study of gold is the study of civilisations. Kevin NK

By Andy Hoffman MidasLetter.com Monday, April 6th, 2009

The past week marked an acme in the U.S. government's Orwellian tactics of fooling the "proletariat" into believing the G-20 meeting was, in Obama's words,
"the turning point in our pursuit of global economic recovery."

How any can believe that a meeting of the very same people that caused this mess, of which the only material conclusion was to print another $1 trillion,
was a success is another story. But I digress.

Birth of the Ruse

Such market manipulation, not just in gold but all financial markets, were officially endorsed in the U.S. when the "The President's Working Group on
Capital Markets" (aka the PPT) was established in 1987 as a response to the stock market crash. However, the 'spirit' of these tactics turned to the 'dark
side of the force' in 2001, essentially at the time of 9/11.

In other words, what was once a defensive, overt policy created to enable action in the face of near-term issues, at that point morphed into a 24/7 covert
action targeting the long-term manipulation of public perception.

And it's no surprise that under this ruse a monstrous housing bubble was born, as well as the birth of the financial engineering (such as OTC derivatives)
that has directly caused the economic calamity we are facing today. With the "gold alarm bell" turned off by its illegal suppression, the capping of
interest rates, the support of stock markets (via the PPT), and unending bailouts of insolvent entities, the resulting financial imbalances have pushed the
U.S. into an economic abyss that it will likely never re-emerge from. Around that 2001 time frame, a number of forces converged to mark the peak of U.S.
global hegemony, including: the top of the dollar index, the accelerated loss of the U.S.'s manufacturing base, particularly to China the top of the stock
market the bottom of the commodities market the bottom in inflation, both "officially" (via the massaged CPI) and practically the bottom of the gold price
the beginning of Bush's "war on terror", yielding the subsequent acceleration of worldwide anti-American sentiment

It was also around that time that the U.S. "Strong Dollar Policy" started to rear its ugly head from the obscurity which it came from.

Any of these quotes ring a bell?

January 2009: In his confirmation hearing with the Senate Finance Committee, Treasury Secretary Nominee Tim Geithner said that a "strong dollar is in
America's National Interest."

January 2009: "A strong dollar is clearly in our nation's interest," U.S. Treasury Secretary Henry Paulson repeated last Thursday at a White House briefing
on the economic stimulus package.

October 2007: U.S. Treasury Secretary Henry Paulson said on Friday that he believes a strong dollar is in our nation's interest".

January 2005: US Treasury Secretary John Snow said on Friday that the US government remains committed to the so- called "strong dollar" policy.

December 2004: President Bush said Wednesday "The policy of my government is a strong dollar policy."

February 2001: Treasury Secretary Paul H. O'Neill insisted today that the Bush administration is committed to maintaining a strong dollar policy.

September 1999 (for historical context): In his speech yesterday and in a separate interview, Treasury Secretary Summers repeated word for word former
Treasury Secretary Rubin's mantra that a strong dollar is in the interests of the United States.

Notwithstanding, the U.S. dollar index has fallen by roughly 35% during this period due to the seven aforementioned factors, not to mention government
monetary and fiscal policies that easily challenge the most inflationary of recorded history (which are becoming more maniacal with each passing day).

As GATA, or the Gold Anti-Trust Action Committee, has detailed for a decade now, the "Strong Dollar Policy" is nothing more than a ruse aimed at
maintaining confidence in an "emperor with no clothes", in other words the dollar. The linchpin of this "policy", of course, is to artificially suppress
the price of gold, principally with paper positions in the futures and OTC derivatives markets, based on Larry Summers' interpretation of "Gibson's
Paradox" a 1930s Keynesian doctrine essentially stating that inflation expectations move inversely to the gold price.

Summers, the U.S. Treasury Secretary in 1999-2001 and currently Obama's chief economic advisor, is, together with ex-Treasury Secretary Robert Rubin, the
father of the gold suppression scheme. This "policy" thrived under Federal Reserve Chairman Alan Greenspan, who overtly stated in 1998 that "central banks
stand ready to lease gold in increasing quantities should the price rise". And of course, current Treasury Secretary Geithner was head of the New York
Federal Reserve during this time, while current Fed Reserve Chaiman Bernanke (remember him?) was Greenspan's protégé.

Anyhow, regarding the "Strong Dollar Policy", clearly the actions of the past three administrations speak a lot more loudly than those hollow words. Which
brings me to the topic of this article, the ongoing "threat" of IMF gold sales?

The IMF and its Gold Holdings

For backdrop, the IMF, or International Monetary Fund, describes itself as "an organization of 185 countries, working to foster global monetary
cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty". This catch-all description essentially enables it to be a behind the scenes clearinghouse of whatever illicit policies its masters are interested in
undertaking, and make no mistake its most powerful members have historically dictated what official IMF policy will be.

The U.S., of course, has a dominant 17% of the IMF's voting power, with no other country holding more than 6%. So it's no surprise that this "international organization" is typically held hostage by the wants of American politicians and bankers, particularly when one realizes that major IMF policy decisions(including proposals to sell gold) require an 85% majority vote to pass. In other words, the U.S. can veto any proposal by its 185-member body.

This reminds me of Robocop's classified "Directive 4", which would not enable him to arrest an officer of the Company that created him!

Anyhow, the IMF theoretically holds 3,217 tonnes of gold (103.4 million ounces), 88% of which (2,814 tonnes) was supposedly acquired more than 30 years
ago, upon the IMF's creation, by pledges from its initial members. The remaining 12%, or 403 tonnes (13.0 million ounces), was supposedly acquired in "off-market gold transactions" in 1999-2000 to repay credit extended by the IMF.

It should be no surprise that the IMF is also charged with creating the 'official rules' of Central Bank gold reserve accounting, creating an outlet for
the upper echelon of U.S. bankers and politicians to stack the deck, and ultimately foster the aforementioned "strong dollar policy" ruse.

The exact details of the IMF's gold accounting policies, for both its own (supposed) reserves and those of member countries, have not surprisingly been
murky. However, it is crystal clear that such rules have allowed Central Bank reserves to be double-counted, creating an illusion of supply not much
different than NASDAQ stock trading volume, which counts two transactions for each share traded, one for the buyer and one for the seller. Not to mention,
despite numerous admissions of Central Bank gold sales over the years, most of the major gold holders (notably, the U.S.), never report declines in their
gold holdings.

In fact, a May 2006 paper titled "Treatment of Gold Swaps and Gold Deposits (Loans)" was presented to an IMF reserve accounting committee, admitting that
IMF member Center Banks "overstate reserve assets because both the funds received from the gold swap and the gold are included in reserve assets."

However, under the pressure of inquiries by Blanchard & Company (a New Orleans coin dealer that sued J.P. Morgan and Barrick Gold in 2003 for market
manipulation), the IMF reported in January 2007 that it was reviewing possible accounting changes for recording gold loans after the Reserves Assets
Technical Expert Group (RESTEG) recommended at the Nineteenth Meeting of the IMF Committee on Balance of Payments Statistics (
http://www.imf.org/external/pubs/ft/bop/2006/06-28.pdf) that unallocated gold accounts held with bullion banks should be excluded from reserve assets. In
other words, they were verifying that gold reserves that have been leased out were still being considered official gold reserves, and recommending that
such accounting procedures should be changed.

In fact, in response to questions posed by Chris Powell, Secretary/Treasurer of GATA in November 2008, an IMF official stated the following:

"Members include their reserve position in the IMF in their international reserves."

This, of course, also validates Blanchard's and GATA's accusations (among others) that anything you read about Central Bank gold holdings is suspect, much
less accounting for the IMF's own gold reserves, which, moreover, is held hostage by the U.S.'s 17% IMF "veto power".

Of course, since those recommendations were made in mid-2007, not a single peep has been heard about the matter - apparently, it's simply a matter of case
closed. The inference, of course, is you shouldn't believe a single thing you read or hear about IMF gold holdings.

More Unknown, Unchecked, Unaudited Data about the IMF

Amidst all the hype about potential IMF gold sales, one needs to realize a few things beforehand.

For one, the aforementioned cloudiness of IMF gold accounting rules makes it uncertain as to exactly how much gold the IMF actually has, especially as
there has NEVER been an audit of such reserves since the gold was supposedly transferred to it in the 1970s (not uncoincidentally, shortly after the gold
standard was abandoned in 1971). And what a shock, the U.S.'s own reserves have not been audited for more than 50 years either.

Secondly, according to IMF rules, only the 403 tonnes of gold described above is even eligible for public sale, not the 2,814 tonnes that is dictated to be held per the established percentage quotas of its member nations.

Not to mention that official IMF gold policy states as such:

"Gold is an undervalued asset, and provides a fundamental strength to its balance sheet. Any mobilization of IMF gold should avoid weakening its overall
financial position. Gold holdings provide the IMF with operational maneuverability, both as regards the use of its resources and through adding credibility to its precautionary balances. In these respects, the benefits of the IMF's gold holdings are passed on to the membership at large, to both creditors and debtors. The IMF should continue to hold a relatively large amount of gold among its assets, not only for prudential reasons, but also to meet unforeseen contingencies. The IMF has a systemic responsibility to avoid causing disruptions to the functioning of the gold market."

This statement makes all the sense in the world, reflective of the likely belief of the majority. Despite the U.S.'s 17% veto power, the other 184 IMF
member nations hold 83% of the vote, and the odds are that very few are in favor of selling gold, particularly many of the poorer ones, some of which rely
on mining and have little interest in already depressed gold prices being knocked any lower.

Additionally, another stated IMF gold policy is to "act in a manner dictated by its members, which include all the signatories to the Washington Agreement
(aka the Central Bank Gold Agreement, or CBGA), and to "abide by the 'spirit' of that agreement."

Let's see, under the CBGA, which permits member nations (essentially all the world's major gold holders) to collectively sell 500 tonnes per year, only 357 tonnes were sold in the fiscal year ended September 2008, and just 150-200 tonnes are projected to be sold in the fiscal year ending September 2009. Given that IMF member nations own essentially the entire world's Central Bank Gold Reserves, it strains reality to believe that the "will" of this group is to sell a significant amount of IMF gold in order to obtain more U.S. DOLLARS.

IMF Gold Sales - Five Years of Rumors

For the past seven years, essentially since the gold bull market started to accelerate upward, U.S. government officials have constantly pulled out all
kinds of rumors, threats, and innuendo to knock gold prices down whenever momentum started to move in its favor.

Back in 2002-2004, when Bush's fear propaganda tactics reined, the #1 rumor when gold started to rise was "bin Laden Captured", "bin Laden nearly
captured", "top bin Laden aide captured", or even "top bin Laden aide nearly captured."

These rumors magically circulated only during COMEX trading hours on days when gold prices were sharply rising. And no matter how unsubstantiated, or, more importantly, how little such an event should actually impact the price of gold, it always knocked the price down and thus quashed the threat of runaway gold prices. But the bin Laden rumors eventually wore out their welcome, as a) it never happened (or even came close), and b) at some point, the public lost its fixation on bin Laden, probably around the time that the housing bubble started expanding.

Thus, starting around 2005, bin Laden rumors started to be replaced by "IMF gold sales" rumors. Again, magically these rumors surfaced in the market nearly every time gold price momentum threatened to accelerate (always during COMEX trading hours), and each and every time it has resulted in a temporary bashing of the gold price.

In fact, a fellow GATA contributor last month did a search engine inquiry on "IMF Gold Sales" and came up with more than 2,200 hits, indicating just how
much chatter has been made about this topic, despite the fact that a) it has never happened and b) would likely have an extremely limited impact on gold
prices even if it did.

In February 2008, the United States Treasury announced that it will seek authority from Congress for a limited sale of IMF gold (in other words, the
saleable 403 tonnes). However, since then nothing has occurred on that front, and given that gold prices continue to rise globally under the most
hyperinflationary monetary and fiscal policies of all time, not to mention that Central Bank gold sales have dramatically declined (with some Central Banks actually buying), it is hard to see how any sane legislative body would agree to sell gold in this environment. Not to mention, no IMF vote was ever taken on the topic.

The U.S. and U.K. - The "Gold Axis of Evil"

And remember, the two countries most in favor of keeping the gold price down are the U.S. and its "bitch", the U.K..

The U.S. dollar, though listing badly, is still the world's reserve currency, and if it loses that status its population will unquestionably endure a
horrific, lasting inflationary depression.

Conversely, the U.K. has hitched itself firmly to the U.S. in all shapes and forms, believing that by doing so it can "piggy back" on its fortunes. Tony
Blair's lap dog approach to Bush's insane obsession with Iraq was a perfect example of this, as well as Gordon Brown's publicly announced sale of nearly
all of Britain's gold at the market bottom in 1999 (at roughly $250/oz.) to aid the U.S.'s efforts in maintaining its newly established "strong dollar
policy". Yes, Gordon Brown was the Exchequer of Britain at the time, a fancy way of saying Treasury Secretary (Paulson, Geithner, etc.), and as a result of that suicidal, nation-destroying action, he has just been promoted to the post of Prime Minister!

And now, goldless Britain, that of the collapsing Pound and the freefalling housing market and banking system, played host to the historic G20 meeting. As
icing on the cake, Gordon Brown, arguably the most incompetent and disgraced financial figure in the U.K.'s proud history, promptly put it atop his agenda
to advise the IMF to sell its gold.

You simply cannot make this stuff up!

Not only that, but it was Brown's team of morons that initiated the immediate gold selloff (which, once again, occurred just as gold was about to
accelerate upwards) by creating yet another false rumor about the nature of such sales.

Brown shamefully had one of his financial lackeys, Treasury minister Stephen Timms, insinuate that the potential gold sales would be in addition to the 403 currently saleable tonnes (per the aforementioned IMF charter). Here's Timms' bold-faced lie.err, quote, from April 2nd:

"What's referred to here is in addition to what has been noted previously."

By the way, I know this is a non-sequitur, but I am currently listening to the "Big 80s" channel on Sirius Satellite Radio, and while I write this the song "Lies, Lies, Lies" by the Thompson Twins is playing. LOL.

What's this? Not a day later, on the afternoon of April 3rd, after gold had already been knocked down $40 in less than 24 hours, Timms' lie was already
refuted by the IMF itself:

"The gold sales apply only to those amounts already agreed and announced previously by the IMF," IMF spokesman William Murray told Reuters.

But by then, as usual, the damage had already been done, exclusively of course in the NY CRIMEX (sorry, COMEX) futures market, with all the sell stops
having already been run and the gold stocks already hammered.

The Same Old Sorry Story

Alright, hopefully I've given some good commentary before I sum up the silliness of fretting about IMF gold sales, much less in the context of the
hyperinflationary government policies being executed worldwide. Heck, the only major "accomplishment" of the G-20 was the resolution to print an additional
$1 trillion out of thin air!

And here's the gist of it:

The IMF theoretically has 3,217 tonnes of gold, which at current prices is valued at $92 billion, a drop in the bucket compared to Chinese foreign exchange reserves of $2,000 billion (not to mention the $1,000 billion of newly printed money noted in the last paragraph). Oh yeah, only 1% of Chinese reserves are currently backed by gold, which publicly stated two months ago that it would like to raise this percentage closer to 10%. For those mathematically challenged, 10% of $2 trillion is $200 billion, or more than twice the amount of the IMF's entire gold holdings (assuming they even own that much, which I highly doubt).

However, just 403 tonnes of the IMF gold is even saleable, which at current prices is valued at a measly $11.7 billion.

What, you say? All those rumors and innuendo, and all of those gold smashes, including the surreally insane one that occurred Thursday and Friday, is just
about the potential to sell $11.7 billion of gold? That's it?

Yep, that's it.

But then you need to throw into the equation the fact that no IMF gold sales were approved, or even voted on. Heck, it wasn't even the IMF's idea to sell
gold, but that of the "G-20", which of course was led by Heckle and Jeckle, in other words the U.S. and U.K..

Not to mention that 85% of the IMF member nations would need to approve such a sale, many of which are either gold producers, net gold buyers, or nations
whose populace would "storm the Bastille" if, in this environment, their government officials agreed to sell gold in exchange for paper U.S. dollars.
Personally, I don't even believe the U.S. Congress would approve such a sale (for the aforementioned reasons), and even if they do that would only account
for 17% of the 85% vote required for the motion to pass in the IMF.

Also, don't forget that after the U.S.'s (likely fictional) 8,134 tonne gold reserve at Fort Knox, the number two Central Bank holder is Germany with 3,428 tonnes (don't believe they have that either), whom vehemently stated last year that it will no longer sell any gold.

Off topic, by the way, the new #6 holder of gold reserves in the world is the U.S. gold ETF GLD, with something like 1,300 tonnes. Frankly, I am more
inclined to believe the U.S. government holds 8,134 tonnes of unencumbered (not leased out) gold than that GLD holds 1,300 unencumbered tonnes. That is how little credibility I give to GLD and its custodians, gold/silver Cartel leaders J.P. Morgan and HSBC.

Finally, even if somehow Congress approves the IMF gold sale, and miraculously the IMF body receives the 85%+ approval required to sell the measly $11.7
billion of gold into a market with annual demand closer to $90 billion (at current prices), how long will it take for this process to occur? Frankly, I'd
be surprised if Congress ever votes on this issue, let alone in the near-term. Not to mention how long would it take for the other 184 IMF members to
debate this hypersensitive issue?

And, oh yeah, any sales would be undertaken, by IMF policy, within the spirit of the Central Bank Gold Agreement, which establishes quotes for annual sales by its members.

Thus, to sum up, how on earth are IMF Gold Sales an issue at all?

Even if the extraordinary amount of political process required to reach the point of actual sales occurs, it will likely take a very, very long time and,
more importantly, be of an infinitesimal amount of gold, $11.7 billion.

Which ironically is the same amount Goldman Sachs paid out in bonuses this year, within weeks of receiving $10 billion of TARP money from their old CEO,
Hank Paulson!

SOURCE: http://www.midasletter.com/commentary/090406-1_Ongoing-IMF-gold-myths-unvravelled.php

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