Solution to IMF Cash Problem: Sell Gold To China

Here's a simple solution to the problem of China having too many dollars and the IMF not having enough - start selling the IMF gold to China.

Talk is heating up again about the International Monetary Fund selling 400 tonnes or so of its gold reserves in order to square its books after revenue shortfalls the last couple years.

It just so happens that there might be a buyer in Asia who would be interested in beefing up their bullion reserves: China is woefully short of the Euro-area recommended 15 percent of reserves that prudent central banks should hold as gold.

As shown in the annotated table above from the World Gold Council, the inventory at the streetTRACKS gold trust (GLD) is about to overtake China in gold reserves (maybe this month at the current pace) and, the embarrassment of this event aside, China really does need more gold.

That 400 tonnes would fetch about $10 billion at today's gold price.

Hey, China could buy all of the IMF gold for less than $100 billion - this would barely make a dent in the $1.4 trillion they have amassed in foreign exchange reserves.

Is that math right?

That sounds like that's way too many dollars and way too little gold.

Comments

[Jaques:]

They wouldn't do that because it wouldn't have the desired effect of suppressing the price of gold. Quite the contrary, such an announcement would boost gold extraordinarily.

The way they play the game, is to regularly bring this red herring out about selling gold at psycholgical moments such as this, when they think there is a risk of the price rising too fast, or when they think it is vulnerable and can be smacked down.

The fact that this gold doesn't actually belong to the IMF but to the member states that have supplied the gold, and that that means it actually belongs to the people of those states; as well as the fact that gold is rising healthily in an extremely unhealthy economic environment, and therefore constitutes an excellent investment for the IMF; is apparently quite irrelevant, as the true motives of these nefarious villains is to maintain the fiction of low price inflation, and also to befuddle the public into thinking that the fiat currencies should be held in preference, so that their insidious annual real value erosion can continue as a hidden unauthorised tax that the masses cannot see or comprehend.

2007 Oct 04 10:02 AM

[David Lentz:]

Let's do the math:

1.4 trillion dollars, at a nice round $700 per ounce, comes in at about 2 billion ounces of gold. (1.4*10**12 / 7*10**2 = 2*10**9)

According to Google, 1 tonne = 35,273.9619 ounces.

So 1.4 trillion dollars could be represented by 56,699 tonnes of gold.

Perhaps an under-the-table deal between the Bush administration and the Chinese administration might result in effective (partial) gold backing (from Ft Knox) of the trillion-plus in rapidly inflating Treasuries that the Chinese have in their foreign exchange reserves, and defuse the threat of those funds being used to "crash" the dollar. The dollar is crashing quite well enough without any outside help.

2007 Oct 04 11:29 AM

[Ames Tiedeman:]

Interesting proposition. Does China want to play this game?

2007 Oct 04 05:20 PM

[Ames Tiedeman:]

Interesting proposition. Does China want to play this game?

2007 Oct 04 05:20 PM

[Ames Tiedeman:]

Interesting proposition. Does China want to play this game?

2007 Oct 04 05:20 PM

[AmesTiedeman:]

Looks like the Yuan is headed higher.


amestiedeman.com

2007 Dec 31 01:20 PM