John Stepek: Why the rising gold price is a headache for G7

By John Stepak
MoneyWeek, London
Monday, February 11, 2008

http://www.moneyweek.com/file/42070/why-house-repossessions-could-double...

My colleague Dominic Frisby wrote the other day about whether the gold price is being manipulated:

http://www.moneyweek.com/file/41862/is-the-gold-price-really-being-manip...

I note that one of the key decisions of the G7 meeting at the weekend was to allow the International Monetary Fund to sell some of its $92 billion in gold reserves.

Now maybe the IMF just needs the money -- and with gold at record levels, it's a pretty good time to raise the cash. But given that the IMF is pretty much the lender of last resort for the entire global economy, you'd think that, particularly at a time like this, it should really be holding onto its gold instead of swapping it for ever-depreciating fiat money.

Right now everyone in the G7 wants to cut interest rates with impunity. But the gold price is probably the best and most visible indicator of just how nervous everyone is about rising inflation and rampant currency destruction, and right now it's screaming red alert. So it'd be nice for the G7 if the yellow metal would just shut up.

Flogging off a load of the IMF's gold reserves probably seems like the best way to do it.

So is this bad news for gold?

Not really. As the team at the Gold Anti-Trust Action Committee (GATA) points out, "for almost a decade now central bank gold sales have been accompanied by higher gold prices, not lower," as the Bank of England can well attest. And if the G7 is looking to the IMF to sell, then it's reasonable to suggest that perhaps their own central banks have now sold as much they want -- or are able -- to. In any case, the United States would need to approve such sales, and has in the past opposed them.

So what should you do if the IMF does decide to sell? I imagine it'll be a good buying opportunity for the rest of us.

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