After years of being called crackpots in tin -- or gold -- foil hats, GATA (the US based Gold Anti-Trust Action Committee) seems to look saner by the day, next to the thorough going loopiness of the financial establishment. The latest evidence is an IMF report that shows how IMF rules wink -- if they do not actually blow kisses -- at central banks which double count gold reserves they have actually lent out for sale in the open market.
Apparently, being a central bank means never having to say you’re short.
Aha, says GATA, which has charged all along that the IMF along with the US Federal Reserve and other government banks have done a financial two-step that has kept down gold prices until recently. The shady rules suggest that when they lent gold out for cash, the banks actually got to double their reserves by counting the leased gold as an asset too. Which means they got to lend, or sell, more gold than showed up on their books. That was pretty sweet both for the lenders -- the central banks, who got a small return for their gold -- and for the borrowers, the bullion banks that got to sell and reinvest the proceeds for a higher return in what’s called a carry trade.
Of course, it’s dollar holders who’ve done the real carry trade -- carrying water for the lucky sods at both ends of the deal by clutching the ever diminishing paper that allows the lucrative game to go on at their expense. Sort of as if you or I or the rest of the peons who supply the tax funds for this financial musical chairs were to blow our money at Las Vegas and then write our losses down as collateral when we asked for a loan at the local credit union. Sounds good, huh?
Or as the IMF report admits delicately, IMF rules have encouraged “overstating reserve assets because both the funds received from the gold swap and the gold are included in reserve assets.” (1)
But except for a lone article in India, the mainstream media hasn’t exactly fallen over itself with this news. (2) Could that have anything to do with the Fed’s stated desire to bring the dollar down gently? Or the recent appointment to Treasury Secretary of Wall Street heavy weight Henry Paulson, CEO of one of the leading bullion banks, Goldman Sachs? The idea seems to be to goose the dollar up enough to prevent banks and dollar holders the world over from dumping the two-timing greenback . . . and one way to do that is to goose down gold.
This week spot gold, already pulling back from the 26-year high of $732 an ounce it hit on May 11, slid below $620 to two-month lows. Sell-and-go-away summer begins to look interesting. Stay tuned.
is a freelance
writer in Baltimore, and the author of the must-read book
The Language of Empire: Abu Ghraib and the US
(Monthly Review Press,
2005) She can be reached at:
Copyright (c) 2006 by Lila Rajiva
(1)“Treatment of Gold Swaps and Gold
Deposits (Loans),” Hidetoshi Takeda, April 2006. The paper appears to have
been first presented in the second week of May to an IMF reserve
accounting committee with the findings to be made public at the end of
Other Articles by Lila Rajiva
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