Double Counting of Gold by Central Banks May Have Aided Price SuppressionJune 7, 2006
Sangita Shah
Financial Express, India
MUMBAI — International Monetary Fund (IMF) seems to have had apparently directed member central banks to double-count their gold when it had been leased or swapped or otherwise had left a central bank's vault or possession. Such a provision allowance for the central banks may have led to the gold price suppression which lasted between 1989-2001, after which price started moving upwards.
Gold hit a 26-year high of $732 an ounce on May 12. Gold has dropped 11% since then. Gold has not yet been able to cross the high of $ 830 mark it hit in 1988.
The paper, "Treatment of Gold Swaps and Gold Deposits (Loans)," written by Hidetoshi Takeda of the IMF's Statistics Department and published in April acknowledges at length the potential for double-counting central bank gold under current IMF rules and suggests rules to prevent it.
The research paper commissioned by the IMF appears to confirm the US based Gold Anti-Trust Action (GATA) Committee's longstanding complaint that the IMF has had been active on this front.
Responding to the research paper, GATA consultant Andrew Hepburn, who discovered the double-counting of leased and swapped gold at several IMF-member central banks, remarked that even in arranging to correct the gold deposit books of its members, the IMF still would allow them to be less than forthright.
Mr Hepburn noted IMF guidelines maintaining that "to qualify as reserve assets, gold deposits must be available upon demand to the monetary authorities." But, Mr Hepburn added, central banks have lent so much gold to suppress its price and make it less competitive as a currency that their gold loans now far exceed annual gold mine production, and so the loaned gold cannot practically be repaid "upon demand." Recovering the central banks' loaned gold without exploding the gold market would take years.
In any case, the IMF's acknowledgement of the double counting of loaned or swapped central bank gold is more evidence of central bank intervention in the gold market, Chris Powell, secretary/treasurer, GATA said in his dispatch.
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