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11:53p ET Thursday, February 3, 2005
Dear Friend of GATA and Gold:
A couple of wonderful posts tonight at the
USAGold.com Forum about the latest IMF gold
sales/revaluation frenzy whipped up by
British Chancellor Gordon Brown should be
widely shared, and so they are appended.
The first is by USAGold's proprietor,
Michael Kosares, the second by his brilliant
assistant, Randy Strauss.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
By Michael Kosares
www.usagold.com/cpmforum
Thursday, February 3, 2005
I don't completely understand this obsession Gordon Brown
has with the IMF gold. I'm sorry, but I don't believe for a
minute that the chancellor of the exchequer is motivated by
the stench of Third World debt. I think we all remember that
the last time Brown stumped for IMF gold sales, he failed.
The IMF opted for revaluation. The result was that the Bank
of England let go of a good portion of the British people's
gold reserve. Now Brown is at it again.
What is really behind all this volley and thunder?
In my view Brown's activity now signals the same thing it
signalled in 1999 -- the beginning of a major move upward
in the gold price. I would consider one of three scenarios:
1. One or more bullion banks are in trouble in London and
gold must be found for the British government and central
bank to fulfill as lender of last resort. (Brown is simply
trying to get ahead of the curve.)
Or:
2. This is just another campaign (ala the Andy Smith
scenario) in a larger war to keep the bullion banks supplied
with enough metal to satisfy the needs of the huge gold
carry trade (which goes on longer than I ever anticipated it
would) and keep it from going bankrupt.
Or:
3. A combination of 1 and 2, in which case Brown sees
himself as killing two birds with one stone.
Brown's hope is that he can steamroll gold sales. The talk
about revaluation is just camouflage. The Bank of England's
sales were directed inventory placements -- not sales but
bailouts camouflaged as sales.
In a long talk with our sitemaster this afternoon on this
subject, he pointed out to me that other members of the
IMF might be very happy to receive their gold back in a
revaluation/sales scheme, not considering the gold to be
of much use to them at the IMF. Other members might get
it back and want to sell. What Brown is hoping for is
sales.
As for the London Bullion Market Association, I would
not be surprised if this was nothing more than a
machination to free up gold to meet the demand
requirements being faced by the bullion banks.
In other words, I'm going with No. 3.
This is not meant to be a comprehensive analysis of
Brown's recurring obsession with the IMF gold but simply
some groundwork to encourage discussion.
I would like to repeat a brilliant statement from the UK's
Sir Henry Tapsell, which I have posted here before as well
as in our newsletters and in my book, "The ABCs of Gold
Investing":
"The whole point about gold, and the quality that makes it
so special and almost mystical in its appeal, is that it is
universal, eternal, and almost indestructible. The minister
will agree that it is also beautiful. The most enduring brand
slogan of all time is: 'As good as gold.' The scientists can
clone sheep and may soon be able to clone humans but
they are still a long way from being able to clone gold,
although they have been trying to do so for 10,000 years.
"The chancellor may think that he has discovered a new
Labour version of the alchemist's stone, but his dollars,
yen, and euros will not always glitter in a storm, and they
will never be mistaken for gold."
Tapsell made that statement in 1999, just before the Bank
of England let go of Britain's gold at cyclically low prices
($250 to $300). My question is: What happens if Brown runs
into a wall this time? What if the verdict is no sales, no
revaluation. Then where will the price of gold go?
By the way, the chancellor Tapsell referred to was Gordon
Brown.
* * *
By Randy Strauss
www.usagold.com/cpmforum
Thursday, February 3, 2005
The last time Gordon Brown seriously agitated for IMF
gold sales under the banner of debt relief for poor
countries was in the early spring of the eventful year
of 1999.
When IMF sales were not forthcoming, suddenly the UK
itself announced that summer that it would be a gold seller.
I don't recall that a direct correlation was trumpeted at
that time between those sales and debt relief, so I was
always left with a suspicion that a lifeboat operation was
more than likely the hushed motivation behind it all.
Those few prestigious banking institutions of the City of
London are, after all, about the only ones that are still
vulnerable to an actual bank run. Dealing in bullion, they
are unlike commercial banks in the sense that they do not
have recourse to an inexhaustible lender of last resort and
must go begging for any manner of help such as they may find
in times of shortage.
As those surprise UK sales swept the gold market to 20-year
lows in 1999, it was significant to see the European central
banks rally together and respond quickly with their
market-supportive Washington Agreement by the end of
summer.
Interestingly, by the end of the year the IMF finally gave a
nod to Brown's earlier notion of debt relief, but the IMF did
it through off-market gold revaluations, thus setting a bit
of precedent and keeping the book closed on actual sales that
would draw down IMF physical reserves.
With Brown agitating again for IMF gold sales (or revaluations)
under the banner of debt relief six years later, one has to
wonder: Is he truly the world's leading humanitarian, or is
there another angle?
If debt relief is the legitimate reason for the clamor,
precedent calls for revaluation to be the more likely
policy.
But if we see what seems to me to be the less likely event
-- if sales of IMF gold are selected by the necessary 85
percent majority of IMF members -- I would tend to interpret
it as a sign that various IMF members (France, Germany, and
perhaps others) are simply wanting their gold back (as seen
in the mechanism of the restitution precedent of the late
1970s).
Having sold a fair amount of the gold of Her Majesty's
treasury, the UK itself may figure prominently among the
countries that would like their gold back -- especially
if the Bank of England anticipates that future lifeboat
operations may be necessary as the LBMA's business heads
toward mothballs, as is suggested by ever-shrinking
clearing volumes over the past eight years.
Viewed from that angle, the two new gold ETFs introduced on
the New York and American stock exchanges may be just part
of a long train of devices to preserve institutional
liquidity, as they are always uniquely vulnerable to demands
for physical deposits and the resulting insolvency.
One way or another, gold will stay in official hands, while all
the public comments serve only a temporary political purpose.
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