This week we begin a new feature on Personal Liberty Digest which will appear the second and fourth Tuesday of each month. It is a column by Brien Lundin, president of Jefferson Financial and editor of Gold Newsletter. Brien has been editing Gold Newsletter since 1993, and during that time has provided readers with timely and profitable analysis of the precious metals and mining share markets and the economic and geopolitical issues that impact them.
We urge you to read Brien’s columns and consider his advice as you adapt your wealth and asset protection strategies to today’s tumultuous environment. We are excited to bring you Brien’s twice-monthly contribution to Personal Liberty Digest.
Bob Livingston, Editor
The Bob Livingston Letter
Personal Liberty Alerts
The Federal Reserve’s decision in late March to dive into quantitative easing was a watershed event in the gold market. It meant that a tidal wave of newly created money was headed our way.
Gold soared on the news. But this shouldn’t make gold investors complacent. In fact, we knew the market was sure to test our convictions, and harshly.
The first of those tests came and was administered by our official sector headmasters. In retrospect, we should have expected it. As experienced gold investors know, whenever the authorities feel the yellow metal is getting “out of hand,” the same tired old canard of central bank/International Monetary Fund (IMF) gold sales is dusted off.
And so it was on the close of the G20 summit in London, just before the heads of state gathered for a round of back-slapping, glad-handing and ear-to-ear grins in front of flashing cameras.
The summit was a surreal blend of glitz, glamour, bluff and bluster—the kind of two-dimensional publicity event that usually has no significant effect or long-term relevance. But this time there may be some very real and dramatic consequences.
Of course, the trillions of dollars of fiat currency pledged to the IMF and sundry international banks and bureaucracies will end up in the pockets of corrupt government officials in developing nations across the globe. It will also line the pockets of the minions staffing the institutions doling out the cash. The result will be more economic harm than good, and more fiat currency sloshing around the world.
Granted, the trumpeted claims of progress toward a new, socialist world order arising out of the summit were a bit disturbing, given our president’s tacit support of such devolution. But these things take more time to develop than the typical leader remains in power, and there doesn’t appear to be anyone—President Barack Obama included—with the necessary charisma to lead the entire world into socialistic decline.
So the most important development to come out of the summit was something most regarded as a minor side note: unanimous support for the sale of 403 tonnes of IMF gold.
The stated goal of the sales was to “use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries.”
Apparently the original purpose of the funds when these sales were first raised months ago (to create an endowment to fund IMF salaries and keep these bureaucrats in high cotton) wasn’t polling well. You can rest assured, though, that the purpose will remain the same, regardless of the new packaging.
But, given the timing, the announcement was apparently intended to stymie a gold rally. And considering the unprecedented global monetary reflation now being perpetrated, it might seem especially important to push these sales through.
Of course, every time IMF gold sales have been proposed before, the announcements have had successively less effect on the market. It got to where you could almost hear the yawns from trading desks around the world.
The difference this time is that, with the Obama administration and the Democratic majority joining forces to expand government at the expense of individual rights, it seems very likely that IMF gold sales will receive the necessary approval by today’s left-leaning Congress. In fact, none other than the brilliant and entirely misguided Democratic Congressman Barney Frank has come out in support of the IMF gold sales, if about a third of the proceeds are dedicated toward “loans” that will further indenture poor countries.
As a side note, don’t be misled by those putting forth the bearish argument that, if the IMF is selling 403 tonnes (12.5 percent) of its 3,217-tonne gold hoard, what’s to prevent it from selling the remaining 2,814 tonnes?
The IMF’s founding Article of Agreement will prevent it. The remaining gold held by the IMF is actually owned by its member nations, according to their initial funding ratios and subsequent payments. IMF rules state that this gold cannot be sold to the market—it can only be sold back to the member countries that own it and the price of such a sale would be at the previously prevailing official price of 35 Special Drawing Rights (SDRs) per ounce.
An “SDR” is currently held to be worth $1.49783, so the IMF would be forced to sell its remaining gold to the respective countries at a price of $52.42 per ounce. It’s not likely that this bureaucracy will look to such an undertaking—which would concurrently destroy the value of its balance sheet—as a profitable venture.
While it remains to be seen whether the U.S. Congress will approve the 403-tonne IMF sale, much damage has already been done as gold investors were punished by the monetary overlords for being impudent enough to fight the oncoming inflationary tide.
In effect, resisting today’s political winds puts the average, freedom-loving investor in a worse position than if he were the victim of a mob protection racket. At least with the mob there is some honor among criminals…and there is the hope of justice through the legal system.
But when the U.S. government—and some “new world order”—are the ones robbing you blind, where do you turn for help?
Before giving up all hope, we need to remember that every previous attempt to rein in gold has only served to send the metal to greater heights.
Patience and persistence is the key, as the broad sweep of global events continues to turn in favor of gold.