Wednesday, October 07, 2009
[This originally appeared here on October 2, 2007. With the gold price now at a new all-time high, China having fessed up to roughly doubling their gold stockpile over the last few years, and the looming IMF gold sales apparently doing little to dampen the renewed "gold fever", it takes on a whole new context.]
Here's a simple solution to the problem of China having too many dollars and the IMF not having enough - start selling the IMF gold to China.
Talk is heating up again about the International Monetary Fund selling 400 tonnes or so of its gold reserves in order to square its books after revenue shortfalls the last couple years.
It just so happens that there might be a buyer in Asia who would be interested in beefing up their bullion reserves - China is woefully short of the Euro-area recommended 15 percent of reserves that prudent central banks should hold as gold.
As shown in the annotated table above from the World Gold Council, the inventory at the streetTRACKS gold trust is about to overtake China in gold reserves (maybe this month at the current pace) and, the embarrassment of this event aside, China really does need more gold.
That 400 tonnes would fetch about $10 billion at today's gold price.
Hey, China could buy all of the IMF gold for less than $100 billion - this would barely make a dent in the $1.4 trillion they have amassed in foreign exchange reserves.
Is that math right?
That sounds like that's way too many dollars and way too little gold.