IMF Gold Sales Prove Economists Aren't Great Money Managers

Clearly, with the recent announcement that the G7 has approved IMF gold sales to help balance the IMF's lopsided budget, only one of two possibilities exist when it comes to the price of gold and economists.

1. There really is a coordinated plan to suppress the price of gold
2. Economists are the dumbest money managers in the world

Of course, it could be some combination of the two. This report from Reuters provides all the latest details:

The Group of Seven rich nations on Saturday approved the sale of gold by the International Monetary Fund from April as part of a broad reform of its budget, Italian Economy Minister Tommaso Padoa-Schioppa said.

"There was an acceptance among the G7 that resources should be raised by selling gold," Padoa-Schioppa, who is also the head of the IMF's steering committee [IMFC], told reporters after a meeting of G7 finance ministers in Tokyo.

He said the agreement would be finalised in April and would complement spending cuts being drawn up by the IMF under its new managing director, Dominique Strauss-Kahn.

"The current gold price means a flow of income can be ensured," Padoa-Schioppa said.

Morgan Stanley analyst Stephen Jen said the Fund held 103.4 million ounces of gold worth some $92 billion at current market prices. That was up from $23 billion just five years ago.

"The IMF is rich, if it wants to be," he wrote in a recent note to clients, issued before the G7's approval of the gold sales. "This is arguably a good time to consider selling some of these gold holdings and investing the proceeds in financial securities with positive yields."

No, the IMF is already rich - it would make itself a lot less rich with the sale of gold.

Only a bunch of economists would look at an asset that has gained about 20 percent per year for the last six years and figure, "It pays no dividend and therefore provides no income, we must sell this and purchase bonds that will pay four percent."

Uh... Did they ever think about selling a little of the metal this year to square the books and then maybe doing the same thing next year and maybe again the year after?

In case they haven't noticed, hard assets are about the only thing that is going up in value these days (i.e,. hard assets being the stuff you have to dig out of the ground, as opposed to financial products that are created with a computer keystroke and are now causing all sorts of problems in the global financial system) .

Better yet, maybe the IMF should just heed the call heard around the world over the last year and dissolve their organization - sovereign wealth funds seem to be performing IMF functions much better than the IMF ever did.

Economists!

Since the U.S. Congress has to approve IMF gold sales, this is by no means a "slam-dunk" as a well organized Western lobby has thwarted similar plans in the past, but, then again, you never know.

Desperate times call for desperate measures and "desperate" is a word that seems to be increasingly applicable to the global system of money and credit that just doesn't seem to want to heal itself.

The soaring price of gold is drawing more and more attention to this inescapable fact.

Comments

[locke]

For this analysis to make any sense, one must accept axiomatically that because gold has outperformed recently, it will continue to appreciate at an unusually high pace.

I don't think this reasoning is logically sound. It may be right (we won't know for a while), but it is not logical.

[Mister C]

This ties in well with the rumours that Banks have been selling Gold to keep the price in check.

[iman]

Gold is preforming well because of inflation (money creation) its not going to slow down untill central banks stop printing, that would be logical but counting on banks and economists to be logical is not logical.

[dieuwer]

"Morgan Stanley analyst Stephen Jen said the Fund held 103.4 million ounces of gold"

People say many things. Show me the proof that the IMF actually has any milligram of physical gold left! Where is our gold???

[mark mchugh]

Tim,

I can't believe I'm thinking, "$92B - that's all," but here we are. I say, "bring it on", let 'em sell. Shoot the only real wad you've got. Then, they can sit around trying to figure out what the confetti exchange rates should be. Obviously, this is a scare tactic to bring the gold price down. Honestly, it may work (similar stunts have). If the world calls their bluff, they may actually sell, and that may work. But, Until I see a better plan for fiscal crisis than monetary collapse, I'll stick with gold. What I'm not so sure about is how many of my fellow investors will blink.