Gold Investments Market Update – China Should Buy All IMF Gold Says “Father of the Euro” Robert Mundell

Gold has rallied 2.5% this morning after falling some 8% last week as the “dash for cash” and the deleveraging of the international financial system gathered pace. In the process, gold gave up most of the gains of the last 5 weeks in just one week. Gold was trading at some $740/oz on September 11th and subsequently surged to over $924/oz as Lehman Brothers collapsed and the global financial crisis deepened.

Gold is wrongly being treated as just another commodity akin to pork bellies or lead. All paper assets are under pressure and have been sold mercilessly in recent weeks, particularly equities and commodity futures contracts. However, shortages in the gold and silver bullion markets are intensifying and will have been made worse by last week’s falls. They are nearly no sellers and nearly all are buyers and buyers are waiting for gold to go a lot higher before they will consider selling. Many realise that the US and global economy is on the verge of a sharp recession and thus understand the importance of staying diversified.

Prices and premiums for bullion coins and bars are increasing on a weekly and sometimes daily basis showing that investors and savers internationally are seeking the tangibility of physical gold bullion in their hand rather than the paper promise of a futures contract.

Similarly, central banks internationally do not buy futures contracts or gold in a leveraged paper format rather they own and take possession of physical gold bars in the form of London Good Delivery Bars (400 ozt) stored in government owned central bank vaults.

Those who question gold as a safe haven asset remain uninformed of the extremely bullish supply/demand fundamentals in the precious metals markets. They are also uninformed of financial and economic history and how gold has and will always act as a safe haven in very uncertain economic times such as the 1930s, 1970s and today. They also wrongly believe that gold is simply just another commodity and do not understand our present monetary system and how gold remains the safe haven currency of choice and asset of last resort of central banks internationally.

China Should Buy All IMF Gold Says “Father of the Euro” Robert Mundell

Robert Mundell, the Nobel Prize-winning economist from Columbia University who is regarded as the inventor of the euro (http://www.robertmundell.net) told the annual fall dinner meeting of the Committee for Monetary Research and Education (the CMRE) in New York that China, with its huge dollar surplus, has a great interest in buying gold to hedge its dollar exposure but is unlikely to do anything disruptive to the world economic order.

Mundell proposed that if the International Monetary Fund really does sell its gold, as is occasionally proposed, China should purchase all of it. Since Mundell is officially an adviser to the Chinese government, presumably it already has heard this suggestion from him.

Some, such as the Gold Anti Trust Action Committee (GATA), have questioned whether the IMF actually has all the gold they claim to have and claim that much of the IMF gold may already have been leased out and or sold into the marketplace and may be double accounted for.

The IMF holds 103.4 million ounces (3,217 metric tons) of gold at designated depositories. The IMF’s total gold holdings are valued on its balance sheet at SDR 5.9 billion (about $9.3 billion) on the basis of historical cost. As of today, the IMF’s holdings amounted to $82.9 billion (at current market prices of $802/oz).
http://www.imf.org/external/np/exr/facts/gold.htm

http://en.wikipedia.org/wiki/Official_gold_reserves

China now has nearly $2 trillion of US dollar denominated bonds and treasuries and the IMF gold holdings is worth some 4% of the Chinese currency reserves. This is very bullish for the gold market as the Chinese have less gold as a percentage of reserves than the Federal Reserve, ECB and European central banks which remain the largest holders of gold.

Especially, as governments around the world have committed more than $3.2 trillion to the cause of bailing out troubled banks and billions are being injected into the global financial system on a daily basis. This shows how small the gold market remains vis-à-vis China’s currency reserves and the entire global currency and bond markets which are huge (in comparison to the tiny gold market) and growing rapidly on a daily basis.

Contagion in the financial markets and US dollar vulnerability are and will bolster gold’s reputation as the central monetary anchor within the international monetary system.

Mark O'Byrne

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