IMF gold weirdness

[blazespinnaker]

Anyone familar with the revaluing of IMF gold to help fund brazil/mexico debt?

How did that really work? And was the recent statement a cause of the sell off in gold? (the typical dip on good news..)

[jk]

Re: IMF gold weirdness

US says gold revaluation not option in IMF funding Mon Jul 17, 2006 2:30 PM ET By Gilbert Le Gras WASHINGTON, July 17 (Reuters) - Revaluing International Monetary Fund gold reserves to shore up its financing to make up for reduced demand for emergency loans is not appropriate, U.S. Treasury Under Secretary Tim Adams said on Monday. "We, the U.S., do not think that gold is an appropriate option. For us, it is not an option," Adams told Reuters in an interview. Robust global economic growth in the past years and booming private capital flows to emerging markets have cut demand for IMF emergency loans. Top borrowers like Brazil and Argentina have paid off existing IMF loans ahead of schedule. As a result, the Washington-based multilateral lender decided to freeze spending levels in 2007 and cut them back by 1 percent in both 2008 and 2009. The IMF is actively reviewing its financing options and has convened an "Eminent Persons" group, which includes European Central Bank President Jean-Claude Trichet and former U.S. Federal Reserve Chairman Alan Greenspan, to provide advice on alternative sources of income for the fund. An update on the group's work is expected at the IMF and World Bank annual meetings in Singapore in September, Adams said. "There are a variety of options," Adams said. "The wise men's group has been directed to come up with, look at all available options and then those options will be reviewed." Two years ago the largest shareholders in the Fund flirted with the idea of revaluing its more than 100 million ounces of gold reserves which, under a 1971 deal, are valued at a fraction of its current market value -- around $50 an ounce. Gold traded around $650 an ounce on Monday. Between December 1999 and April 2000, the IMF conducted separate but closely linked gold transactions with Brazil and Mexico. The complex process involved the IMF selling a total of 12.9 million ounces of gold to Mexico and Brazil, both of which had financial obligations coming due to the fund. The fund immediately bought back the gold at the same market price, revaluing the metal and settling the two countries' financial obligations. [presto-change-o! this sounds like something you could go to jail for doing in the private sector. jk] The net effect of these transactions was to leave the balance of the IMF's holdings of physical gold unchanged. The 2004 proposal by British Chancellor of the Exchequer Gordon Brown ran into resistance from Group of Seven rich industrialized countries and gold-mining powerhouse South Africa. [i assume this refers to brown inviting the imf to join britain in selling gold at the bottom-jk] Some national treasuries of IMF shareholder countries would have had to book the entire write-down in the year of sale, creating an accounting headache. Others were concerned about the likely bearish impact on precious metals markets and some feared a permanent reduction in IMF assets.

[blazespinnaker]

Re: IMF gold weirdness

I agree, very very kinky.

From 1999..

IMF officials say they expect to 'sell' some of the agency's gold to
Brazil and Mexico in a series of transfers starting Dec. 15 and running
through the Spring of 2000.

These countries have payments falling due to the IMF and have agreed to
'buy' gold from the lender's reserves at the prevailing market price.

In turn, the IMF will take back the same amount of gold, at the same
price, in lieu of cash settlement of the countries' debt repayments.

Thus, explains an IMF source, the countries will cover their debts to the
Fund while allowing the agency to revalue the gold, which otherwise would
continue to sit on its books at values of 50 years ago, when the bullion
first was deposited by member states.


..

Lawmakers here say they will entertain the agency's request for the
remaining five million ounces around May next year, by which time they
expect to see improvements in the IMF's book-keeping and transparency.

Transparency indeed.

Go here, for a step back in the time machine:

http://lists.essential.org/stop-imf/thrd3.html#00285

[metalman]

Re: IMF gold weirdness

looks like the IMF needs a good global catastrophe or they're outa business or they're going to sell all the gold on their books at $35 for $650 to book the profit.

no biggie... hear China and Iran are buying.

[jk]

Re: IMF gold weirdness

Go here, for a step back in the time machine:

http://lists.essential.org/stop-imf/thrd3.html#00285

found this at the site you linked

http://lists.essential.org/stop-imf/msg00285.html

apparently the imf couldn't just mark its gold to market. it had to go through this sham transaction in order to rebook its own gold at market prices. as for the imf needing a catastrophe in order to stay in business, if it can just hold out a bit longer, maybe we here in the u.s. can provide the answer to its dreams.

[blazespinnaker]

Re: IMF gold weirdness

well, i understand that they'd want to take advantage of the differential.... I just don't understand why they have to 'revalue' the gold, and why was brazil/mexico required?

They have gold, gold prices go up, they should now have X amount of money in gold. That's how it works everywhere else in the world, no?

And if not, why does the mere fact that you sell it to someone who owes you money and then automatically buy it back from them make the transaction any more credible?

The whole indicent just smells terribly. I suspect if I did some digging around, it would be considered a real black mark on their track record. No doubt this is why they don't want to revalue again.

Also, I think I found another reason why gold went down so fast - china isn't going to revalue the yuan, meaning more currency manipulation on the USD, meaning a strong dollar, and therefore less of a need to flee to safe havens like gold. (Or maybe it was some middle east fear mongers locking in some profits)

Sure hope China can keep this up, however, they may learn the hard way that you can't centrally manage an economy.