By Patrick A Heller
As I wrote last week, the price of gold declined going into the G-20 meeting last Thursday. It has continued to decline since then in large part because the specter of International Monetary Fund gold reserves possibly being sold into the market.

Supposedly, the IMF would be selling 403 tons (just under 13 million troy ounces) of its gold holdings to fund efforts to resolve the global financial crisis. In all likelihood, this gold will never be sold or, if it is, will be completely sold to a single central bank.

To understand why the threat to sell IMF gold is almost certainly a scam to knock down the price of gold, you need to understand more background information than I can provide in this column. But let me give you a few tidbits. The gold reserves of the IMF were created mostly from pledges from the organization's initial members. In theory, the gold is supposedly stored in four countries, including the United States and United Kingdom. However, the existence of and title to these gold reserves has never been audited in the organization's history.

Under past IMF accounting standards, where a central bank leased gold to another central bank, both banks were required to report the same gold as being held in both of their vaults! For the past two years, the IMF has requested, but not required, that central banks break down their information on gold reserves between what is held in their own vaults, and what has been leased and is no longer in the vaults. There has been little adoption of this more accurate standard. The United States especially has not complied with the new standard.

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Earlier in this decade, the IMF threatened to sell 403 tons of gold reserves in order to fund financial aid to poor nations. No gold was ever sold.Last year, the IMF announced that it would sell 403 tons of gold reserves to establish an endowment fund to generate income to cover growing IMF operating deficits. No gold was ever sold.

The IMF does not have the authority to sell any gold unless it gains the approval of 85 percent of its voting members. The United States has 17 percent of the voting power of the IMF, which gives the U.S. government veto power over any IMF gold sale.In order for the U.S. government to approve any IMF gold sale, Congress would have to pass legislation. There has yet to be any legislation proposed in Congress for any of these supposed sales of IMF gold, despite that fact that the U.S. Treasury specifically announced in February 2008 that it would seek such legislation.

In a letter to Chris Powell, the Secretary-Treasurer of the Gold Anti-Trust Action Committee (GATA), in November 2008, an IMF official stated, "Members include their reserve position in the IMF in their international reserves." In other words, the same gold is reported in IMF reserves and in each country's reserves.

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