"The Fund is facing increased credit risk in light of a surge in program lending in the context of the global crisis. While the Fund has a multi-layered framework for managing credit risks, including the strength of its lending policies and its preferred creditor status, there is a need to increase the Fund's reserves in order to help mitigate the elevated credit risks", Bloomberg quotes a report by an IMF staff while also adding that a $2.3 billion gold purchase is in the planning.

The transaction would amount to about 40 tonnes of gold at current prices.

The IMF was selling gold as late as September 2010, when it sold 10 tonnes to Bangladesh.

In 2009, it sold over 400 tonnes of gold to India, its last big sale.

Even taken at face value, this move is a stunning reversal of the IMF's decades of policy of effective disdain for gold, adhered to even after the 2007/2008 market panic. But something doesn't smell right to us here. Astute observers have pointed out for years that the IMF doesn't really "have" any gold -- all of its stash of around 2800 tonnes are in the form of "pledges" from IMF members. The IMF's "reserves" are in fact double-counted as wholly-owned/held reserves of the respective national Treasuries participating in the IMF, essentially inflating the apparent "official gold supply" in the world by that quantity.

So they are starting with "unclean hands" here. Thus it strikes us as eminently possible that the IMF doesn't really want to be buying gold, but perhaps it has to.

Note that the Indian central bank is now being challenged on having over 200 tonnes of gold stored abroad, in Britain, in violation of Indian law that requires at least 85% of the country's gold trove be kept domestically. That's interesting. Could it be, perhaps, that India never got all (or any) of the actual physical gold it bought from the IMF in 2009, and now someone noticed?

And could it be that the IMF, now faced with the prospect of India (and/or potentially other recent recipients of IMF gold) suddenly interested in having the actual gold, that it finds itself needing to get some of the stuff? More than the zero actual held tonnes it truly, really has?

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