Saudis Made Right Decision in Refusing IMF Request, Investing in Gold

Vice-governor of the Saudi Arabian Central Bank Mohammed Al Jasser told journalists in Dubai yesterday that the Kingdom’s $343 billion in foreign reserves were held in ‘very liquid, safe, minimal risk’ international assets. ‘Our bank exposure to international markets is extremely small’ he added.

His comments followed remarks by Saudi Finance Minister Ebrahim Al Assaf in Washington that the Kingdom has no intention of tapping into these funds to recapitalize the IMF. ‘There were lots of rumors that we are coming here to pay the bill, there is no such thing,’ he said.

However, His Excellency emphasized that Saudi Arabia would make good its promise to invest $400 billion in the oil and gas sector over the next five years. Saudi Arabia has responded promptly to the global financial crisis to secure its domestic economy, cutting interest rates, lowering bank reserve requirements, guaranteeing bank deposits and injecting billions into its banking system.

Brown’s blundering

But it appears that last week’s visit to the Kingdom by the hapless British Prime Minister Gordon Brown has backfired, as his request for money to boost the IMF’s war chest has been ignored.

Al Assaf commented: ‘This is his opinion. This is not our opinion. We are not going to pay more than others. We have been playing our role responsibly and will continue to play our role, but we are not going to finance these institutions just because we have large reserves.’

Mr. Brown’s blundering diplomacy is part of his quest to flood the world with money to avoid a deep recession that will surely cost him his job when he faces his first-ever general election as Prime Minister. As Finance Minister he presided over the UK housing boom and a massive expansion of public spending, now seen as reckless domestic economic management which has left Britain the worst exposed economy in the global financial crisis.

Domestic investment for global benefit

Saudi Arabia is acting responsibly in looking to invest its money in long term economic infrastructure rather than short-term, highly inflationary spending by desperate Western politicians. New supply is the way to prevent another oil crisis, not handing money to the IMF.

It is also not surprising that local Saudi investors are also choosing to invest in sound money like gold, of which a group of businessmen recently bought $3.5 billion, apparently just before the price correction of the past couple of weeks.

Caution now reigns among Persian Gulf investors, who have seen early investments by their sovereign wealth funds in Western banks decimated by stock market crashes. The feeling is that markets abroad need to find a bottom while good investments can be found closer to home in national infrastructure development.

Comments

[Jeffrey Nic...:]

The following comment is taken from my November 12th post in NicholsOnGold.com:

The United States Treasury and the Federal Reserve are throwing a trillion dollars, more or less, into the banking system. And, there’s surely much more to come.

(I’m reminded of that wonderful repost by Nelson Bunker Hunt when, in 1980, after going broke in silver, asked by a reporter what it felt like to lose a billion dollars. Hunt shot back: “A billion dollars ain’t what it used to be.”)

It’s not only the U.S. monetary authorities pumping up the money supply. Their counterparts in every major economy - including the United Kingdom and the Euro zone, China, Russia, Japan and on and on - are doing likewise.

We have never - in the history of money - seen such an expansion in its supply without, after a period of time, a rapid deterioration in its value, in other words, without a rapid increase in the overall price level. More than any other factor influencing the gold market, it is the inevitable rise in price inflation that will propel gold skyward in the next few years.

2008 Nov 17 09:18 AM

[Alex Stanczyk:]

It was pointed out to me by a man I have come to trust and respect for his knowledge of global finance, that at some point in the near future central banks will reverse course and become net buyers of gold.

Recent articles show China and Iran doing exactly this.

I dont believe it will be too much longer before western nations are forced to follow suit.

2008 Nov 17 09:20 AM

[sandspider:]

Languishing in the temperate climate of winter in Iraq, I fly thru Dubai, UAE on a semi annual basis. Dubai has more gold to sell then any city on the planet and I am talking real gold jewelry in a min of 18 K. 20, 22 and even 24 K gold. Iraq has a beautifu reddish tint 21 K gold only produced here. This time my trip thru the gold district of Dubai I found almost lines of folk, many European and American buyers. And the price is not the hyper inflated price of the cheap less then 50% crap going for in the states. You pay by the gram not the design or the name or the importer. They are literally hauling this stuff in in baskets and folks are buying it up by the handfulls. I am already a buyer...but the first time I saw this, besides saying holy cow was what do they know that I don't? I think I figured it out. And last but not least...the talk on the street of the Gulf Council thinking about their own currancy...All the wealthy middle eastern group with their own currancy backed by oil and gold. Oh oh! The current ratio of US $ to some of their other currencies is enough to make the Euro blush. Check out the Kuwait dinar and its rate...if that is anything close to what their new currency could do...watch out. The Saudis are not stupid and are a hell of a lot smarter then the Labor party in the UK or the labor party in the US....and time will show you just how smart they are....this of investment of theirs is just the beginning.

2008 Nov 17 01:37 PM

[goldis4ever:]

Despite the huge purchases of gold by the Gulf nations, the gold rate hasn't been behaving well. It's not like it's a box of cornflakes.

2008 Nov 17 01:45 PM

[raytayzmd:]

...yeah, I saw that Saudi gold story by "Mariam Al Hakeem"...I saw another one in the same paper where she wrote:


"Riyadh: An official source at the Ministry of Interior announced that Saudi Arabia was not holding any women terrorists in its prisons.

"All those women who were detained for their extremist links have been released. All of them abandoned their deviant ideologies, thanks to the counselling programmes, organised by the authorities," the ministry source was quoted by Saudi Arabic dailies as saying."

...yeahhhh -- right!...I dunno if I would put much faith in those Saudi news reports.

2008 Nov 17 11:00 PM