The IMF Is Driving Up Gold Prices

By Peter Costa

It does not take a renowned economist or hedge fund manager to see the value of gold these days. For the last 3 months gold has consistently been breaking record highs leaving everyone in awe. As scores of individuals speak about this being a bubble in gold, I tend to differ in opinion.

There are countless events driving up the price of gold but there is one in particular that we should observe with a watchful eye. The selling of the IMF gold reserves has contributed greatly to the recent surge in the price of gold and is only the beginning for the yellow metal. On September 18, 2009, the Executive Board of the IMF approved the sale of 403.3 metric tons of gold (12.97 million ounces) which amounts to one-eighth of the Fund’s total holdings. China for the longest time was the likely candidate for the sale and stated that they were willing to buy up the whole amount in one swoop. In a twist that blindsided the global economy, India negotiated to buy half of the amount and over a 2 week period ended up purchasing 200 metric tons. Since this purchase has been announced the price of gold has jumped up nearly 7% in value. Rumors have been swirling around that India purchased the gold at a premium and the amount they paid is still undisclosed. The reason for the recent purchase from India was to diversify its reserves away from the US dollar which has weakened in recent months. “The US dollar in the last five month has lost 6.5% of its value and is only going to become worse” stated Ronald Fricke president of Regal Assets last week in response to the recent IMF purchase. China has already been extremely vocal about the weakening dollar and now with India steering away from the greenback a domino effect could follow. There seems to be solidarity among the central banks that it is better to cut back on currency holdings and diversify into assets like gold. As the US dollar continues to plummet the global currencies will be dragged down with it. Fiat currency has never worked as a monetary exchange and is doomed to fail. As more currencies start to lose their value the fight for gold will only escalade.

If gold has already seen a 7% increase in price with the purchase of 200 metric tons, I sit in anticipation to see what the price of gold will do when the remaining 203 metric tons is sold. Accordingly who is this new purchaser going to be? Is it going to be China or possibly Russia? The surge in gold prices is only going to continue as everyone starts to catch on to the reality of the failing greenback and it could very quickly become one of the hardest metals to get a hold of.

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