IMF Concludes Gold Sales

Montreal, Canada

The last overhang of the International Monetary Fund’s (IMF) gold sales has now been digested by the market as we shortly conclude 2010. That’s bullish for the market since it neutralizes the scope for additional surprise sales by any single institution.

Since September 2009, the IMF has sold 403.3 metric tons of gold bullion, mostly to central banks in the Indian sub-continent, including India. The latter, the biggest economy in the region, purchased its first tranche of gold more than 12 months ago from the IMF around $1,050 an ounce. That’s also true for Bangladesh and Sri Lanka.

In Europe, central banks aren’t selling gold anymore. Throughout the 1990s, many central banks in the region, including Switzerland, sold gold. The Bank of England, notoriously infamous for its ill-timed sales, sold the last tranche of its hoard in 1999 at around $250-$275 an ounce. Gold producing nations also sold gold near the lows, including Canada and Australia.

But notoriously absent in the 1990s gold-dumping parade was the United States – still home to the world’s largest deposit of bullion. The United States has never officially recorded a sale of bullion over the past forty years, at least to my knowledge.

The balance of economic power continues to shift early in the 21st century, as macroeconomic forces tilt to the Far East and parts of Latin America. Central banks in these countries are increasingly accumulating gold and non-dollar currencies to diversify their foreign-exchange reserves, mostly loaded with American dollars. It’s their natural destiny to accumulate gold, especially in China, who’s more than $2.5 trillion dollars of reserves are a powder-keg because of its huge over-weighting in greenbacks.

The next crisis, if not diverted by officials, is likely to be a Treasury or/and dollar crisis. The dollar is heading right down the gutter as the Fed overshoots credit creation and dangerously juggles the flow of dollars.

The single European currency is already in a crisis; if Spain is devoured by speculators then up to 18% of eurozone GDP will require a bailout, including Ireland, Greece and, probably, Portugal. This explains in great part why gold is soaring this year vis-à-vis the EUR and why the Swiss franc is at an all-time high against the European single currency.

The eurozone, apart from the core nations of Germany, Holland and, perhaps, smaller economies like Luxembourg, is basically bust. The United States is next. The bankrupting of America is accelerating, unless politicians can get a handle on spending and address deficits. But like most financial crises in the past, the United States seemingly responds only after a seismic shock and not before.

It’s no wonder gold is in a bull market. The global exchange rate system is crashing.

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