Commodities | Jan 29 2007
By Greg Peel
The story so far is that there is a groundswell of global opinion that the practise of gold lending between central banks and of derivative activity of the world’s large gold banks suppresses the price of gold and effectively overstates global gold reserves. FNArena covered these allegations in depth last year (The How and Why of Gold Price Manipulation, Sell&Buyology, 30/08/06).
The bottom line is that many believe the gold price should really be higher – much higher – but for such underhand activity. The point of suppressing the gold price is to maintain the value of the world’s benchmark currency – the US dollar. The Gold Antitrust Action (GATA) committee has led the charge against the International Monetary Fund and its rules which allow for such a practise (although it’s unlikely this oversight is intentional).
GATA’s accusations are supported by extensive evidence and are hard to deny. More and more observers are of the opinion that GATA is quite right, although there remain many who dismiss GATA’s accusations as lunacy. Nevertheless, excitement was sparked last week when news stories on gold websites announced that the IMF had indeed decided to change the rules.
The IMF has been reviewing all aspects of the gold trade by central banks for the fifth edition of its Balance of Payments Manual, which includes the regulations governing gold swaps and loans. AMEInfo of Dubai noted “It remains to be seen whether the central banks now manage to sabotage this attempt to control their alleged gold market manipulation. But the very publication of the draft rules, which have clearly been endorsed internally by the IMF, throws down a major challenge to the banks”.
A draft edition of the rules is due to be posted for worldwide comment within two months. But the IMF has already attempted to throw a bucket over excited gold bugs. Spokeswoman Conny Lotze sent a statement to ResourceInvestor:
“At this time the IMF has not adopted any new accounting changes for the recording of gold loans. A review is taking place in the context of the update of the fifth edition of the IMF’s Balance of Payments Manual and has involved experts from the Fund, other international agencies, and a number of member countries.”
And, not surprisingly:
“There was a clear majority in favour of maintaining the current treatment of monetary gold. Further consultation with Committee members is needed on unallocated gold accounts held by monetary authorities. This issue will involve further consultation with Committee members.”
However, ResourceInvestor suggests this statement contradicts comments made elsewhere that changes were being considered and it remained only to settle on how they would be implemented.
As far as GATA and global gold bugs are concerned, the mere mention of possible changes should be good news. The question is can the IMF carry on allowing what is clearly a potential to mislead the market on gold reserves, even if innocently. The other question is just how independent is the IMF, and how much pressure can it endure from powerful forces who would much prefer the status quo?
