Agora Financial’s Rude Awakening

Jump to Comments

Baltimore, Maryland

• The historical move of gold after each IMF sale,
• How much is 400 tonnes of the shiny yellow metal really worth?
• Brand new ways to hedge your dwindling dollars and plenty more…

Eric Fry, weighing in from Laguna Beach, California…

400 tonnes of gold sounds like a lot of gold…and it is.

400 tonnes of gold would equal nearly 13 million ounces, which would be worth
nearly $12 billion at today’s prices.

$12 billion sounds like a lot of money…and it is, especially if you are an
international monetary agency with lots of gold but very little cash.

Unfortunately, to get the cash you’d have to sell the gold …after which the
gold would belong to somebody else. Would that be a good trade? The mandarins
at the International Monetary Fund (IMF) think so. From the perspective of
this monetarily-challenged monetary agency, $12 billion probably FEELS a lot
more valuable than 400 tonnes of gold.

You see, the IMF has been running up a few bills that it cannot easily pay.
This former paragon of fiscal probity racked up a $100 million operating
deficit last year, en route to a $360 million deficit by 2010.

So why not sell a little gold? It’s just sitting there. Besides, $12 billion
would pay a lot of bills…and who cares about the IMF’s gold anyway?

The crowd on Wall Street certainly doesn’t. They’re too busy rescuing the
charred remains of their capital from the embers of the CDO debacle to care
about trying to preserve their capital in the gold market. But we individual
investors might care a little about the IMF’s gold. Specifically, we might
wish to know how the IMF’s sales might affect the gold price.

Our colleague, and resident gold expert, Ed Bugos, dismisses the proposed IMF
gold sale as a non-event – both because the global gold market could absorb
an additional 400 tonnes and because the additional 400 tonnes might not be
“additional” at all. Bugos points out that the IMF seeks to coordinate it
sales with those of other nations. The IMF has stated that its gold sales
would “be coordinated with current and future central bank gold agreements so
as not to add to the volume of sales from official sources… It would simply
take the place of some gold sales that would have been done by other parts of
the public sector, other official sellers.”

In other words, these new sales would not be nothing new.

Over in London, our non-resident gold expert, Adrian Ash, shares a few more
thoughts about the IMF’s prospective gold sales…

—- Golden Wealth Insurance Reoprt —-

Introducing a revolutionary investment…

A “WEALTH INSURANCE” POLICY with a potential 201% upside in two years… and zero downside

With the stock market gyrating wildly in recent days, wouldn’t you like the
security of an investment guaranteed to never lose money… while giving you
the ability to cash in on a gold price that could reach $2000?

I’m so confident about gold tripling in price and protecting your hard-earned
wealth, I’ll even make a triple-your-money guarantee…

(But you have only until March 11th, 2008 to act… or this “wealth
insurance” may never be offered again.) Position Yourself Right Here.

——————————————–

Fading the IMF
By Adrian Ash

The gold price now hovers near all-time record highs. Whereas the
International Monetary Fund (IMF) finds itself short of $400 million per
year. Can you guess what comes next? That’s right; the IMF unloads some of
its gold.

Will these sales weigh on the gold market? We think not. In fact, whenever
the IMF or the major central banks in the West start selling gold, individual
investors should be buying it…at least that’s the lesson of history.

“The IMF is rich if it wants to be,” says Stephen Jen at Morgan Stanley,
recommending IMF gold sales just before the idea was agreed by leaders of the
world’s top seven economies on Feb. 9th. IMF gold – the third largest hoard
after the American and German government gold reserves – is now worth around
$92 billion, tripling in value since the start of this decade. And if you
were spending $1 billion a year but only bringing in $600m, as the IMF is
today, wouldn’t you want to sell a little of your 3,217 tonnes of gold
bullion?

“The current gold price means a flow of income can be ensured,” said the head
of the IMF’s steering committee, Italian finance minister Tommaso Padoa-
Schioppa. It’s the simple solution, agreed leaders of the G7 wealthy nations
in Tokyo. But will IMF gold sales happen? And would it matter to the gold
market anyway?

To answer these questions, let’s take a brief tour though history…

Founded at the end of World War II with donations of cash and gold from its
member nations, the IMF works at economic “crisis prevention” worldwide.
Using the $338 billion or so in cash that it holds (but never the gold, which
exists as a ballast of “fundamental strength,” as the IMF explains), the IMF
also lends to countries facing balance-of-payments problems. This is where
the IMF earns its keep, charging interest on these short-terms loans.

The IMF also makes loans to low-income countries implementing poverty-
reduction programs, currently helping 23 countries from Afghanistan to Sierra
Leone. But more famously, the IMF offers advice and technical expertise to
help developing economies emerge from crises by stabilizing their foreign-
exchange rates and re-structuring government finances.

Since the Argentine crisis of 2001, however – blamed partly on the IMF’s
questionable advice – new IMF lending has contracted dramatically. Therefore,
the IMF’s income has also contracted. The world’s developing economies have
simply developed too fast; they don’t need as many hand-outs from the IMF.

Indeed, many former clients are now so busy piling up foreign exchange
reserves, you have to wonder why the IMF doesn’t ask for help instead. Or the
US, for that matter. The world’s largest economy is now running a trade
deficit worth 6.5% of its annual turnover. (Economists get nervous about any
figure above 3%. Too bad U.S. politicians don’t). The US government has run
up $9 trillion in debt, and the US Dollar has dropped one-third of its value
in the last five years to reach all-time record lows against the rest of the
world’s currencies.

Would selling some IMF gold help push the gold price lower – and by
extension, help the US Dollar to recover? It’s been tried before, and with
little success. Between 1976 and 1980, the IMF sold gold in a bid “to reduce
the role of gold in the international monetary system.” The IMF unloaded one-
third of its total gold holdings – 1,600 tonnes in all.

Half of that IMF gold was sold back to member nations at just $35 per ounce –
the old “fixed” gold price until 1971. (But remember, these sales took place
during the late 1970s, when the gold price was several times higher than $35
an ounce). The other half of that IMF gold was sold via auction, but the
auctions were so well subscribed that the impact on the gold price was
actually to forced it higher. The auctions were eventually suspended.

Come April 1978, the Second Amendment to the IMF’s Articles of Agreement
finally eliminated gold bullion “as the common denominator of the post-World
War II exchange rate system,” as the IMF explains on its website. “[The
Amendment] also abolished the official price of gold and abrogated the
obligatory use of gold in transactions between the IMF and its members. It
furthermore required that the IMF, when dealing in gold, avoid managing its
price or establishing a fixed price.”

But trying to cut gold out of the world’s monetary system did nothing to stem
the flight of investment cash into gold. To the contrary, during the four
years that the IMF conducted its auctions, the gold price soared by 400%.

Fast forward two decades and we find the IMF returning to its old tricks.
Ever since the dawn of the new millennium, various IMF officials have
proposed gold sales. The last such proposal came in February 2007, when a
panel of notable “worthies” recommended selling 400 tonnes of IMF gold to
cover debt-relief in poorer nations. That panel included an array of
distinguished gold-scorners like former Fed Chairman Alan Greenspan and
former UK Chancellor, Gordon Brown – the man who orchestrated the sale of 400
tonnes of gold from the British Treasury in 1999, just as the gold price was
hitting a two-decade low. The panel’s call for IMF gold sales came to naught
however.

One year later, the price of gold in Dollars, Euros, Pounds Sterling and most
other major currencies has risen more than 30%, thereby lending fresh urgency
and “legitimacy” to the idea of selling gold. All seven leading members of
the IMF – the G7 group of wealthy nations – agree the IMF should be allowed
to decide for itself. But any sales of the IMF’s gold must be approved by 85%
of the organization’s total voting power. The United States, as the largest
single member nation, holds a crucial 17% of that power – giving it an
absolute veto over that 85% requirement. And the US, as the largest single
member of the IMF, also contributed the largest single share of the IMF’s
gold.

Would Congress approve a sale of this “IMF gold” to help shore up IMF
finances? The US blocked a previous attempt to sell IMF gold in 2005. And
with an election now looming, the idea of selling “legacy gold” to cover a
short-term funding gap might not appeal to US politicians.

“Gold played a central role in the international monetary system until the
collapse of the Bretton Woods system of fixed exchange rates in 1973,” as the
International Monetary Fund itself explains. “Since then, the role of gold
has been gradually reduced,” the IMF claims.

Au contraire! The “role of gold” may have been gradually reduced for
governmental agencies like the IMF or the Bank of England of the U.S. Federal
Reserve. But the role of gold has been rapidly increasing among individual
investors. They seem to understand what most central bankers don’t: gold
holds its value better than paper money.

“Every time the IMF has sold gold it has actually triggered more buying
interest,” says Mario Innecco, a broker at MF Global in London, to Bloomberg.
“It will just make it easier for the big sovereign buyers” – the big central
banks outside the G7 who want to build up their gold reserves – “to snap up
cheap gold from the IMF.”

The IMFs sales would also make it easier for individuals to snap up cheap
gold. The last time the IMF unloaded some of its gold, the price of the
precious metal soared 400%. We would not dare to predict a repeat
performance, but neither would we dare to rule it out. Instead, we would ask
one simple question: If the IMF is dumping gold, what do you want to be
doing?

[Joel's Note: We really see only two ways this can play out. Below are a
couple of links for you to peruse at your leisure…

• Further reading for dollar bears
• Further reading for gold bulls

—- Options Hotline Four Months Free Offer* —-

Just 5 Minutes of “Work” Pays Cautious 39-Year-Old Auto Parts Supplier $900
in Pure Profits

Do you have 5 minutes to “work” like him starting Sunday night?

If so, you can have 4 FREE months to try out this revolutionary options
research service?

* There’s one catch: You must claim your spot by midnight on Monday, Feb. 18,
2008. Take Advantage Of This Offer By Clicking Here .

————————————————–

[Rude Endnote: If you’re looking to move some of your dwindling dollars
across to the metals, we’d suggest taking a quick look at some of the
products EverBank offer.

Whether you want coins, bars or pooled metal by the ounce, at EverBank, you
can generally trade within 1% of the current spot market price. And account
minimums are only $5,000 for Pooled accounts and $7,500 for Holding.

You get full online access to your metals account with the award-winning
EverBank Online Financial Center, so you’ll never be too far away from your
metals investment with access to your account when you need it. Plus you’ll
receive monthly account statements showing your allocations.

We’ve got an ongoing business relationship with the EverBank folks and, often
times, our editors even sit in with the EverBank team to help create ideas
for new products. Apply for your EverBank Precious Metals Account today.

Cheers,

Joel Bowman
Rude Awakening