Could the IMF Cause Havoc in the Gold Market ?

There once was a banker who enjoyed tremendous success lending to clients around the globe. But gradually over time, the forces of globalization grew so powerful that his clients no longer needed to borrow from him for they were enjoying unprecedented wealth of their own.

If you are waiting for Snow White and some dwarves to come around the corner next, forget it. This is no fairly tale. This is real.

The banker I speak of is the International Monetary Fund (IMF). Once a powerful global lender to developing nations, the IMF now has only $20 Billion in outstanding loans ( 1/4 of what it had 7 years ago)and half of this outstanding amount is to one country - Turkey.

Yet through it all, the IMF has maintained the size and scope of its global operations and unless it starts to earn money from interest on its lendings, by 2010 it will have racked up a $400 million operational deficit.

So what to do? Well for starters, the IMF is sitting on a hoard of Gold. It could sell off a portion of this Gold and eliminate its future operational deficits in one fell swoop. In order to facilitate a sale of Gold, the IMF requires an 85% approval vote from its members. The US carries 17% of the votes at the IMF board room table and so could veto such a sale if it wanted to.

If a Gold sale gets vetoed, the IMF will then be forced to downsize itself and in so doing will end up laying off some very talented financial researchers and policy analysts.

So, the future direction of the IMF lies squarely with the US. With the US Dollar locked in a continuing downtrend, don't be surprised to see an IMF Gold sale get approved. This would serve to drive down the price of Gold and prop up the value of the US Dollar. Two things that several players on Wall Street would most certainly approve of right now.