I.M.F. Sells Gold to India
2009-11-04 07:24:06.183 GMT
By REUTERS
Nov. 4 (International Herald Tribune) -- MUMBAI — The International Monetary Fund has sold 200 tons of gold to the Reserve Bank of India for $6.7 billion, quietly executing half of a long-planned bullion sale that could slow the rising price of gold.
The sale, which surprised traders who expected China to be the leading buyer, will relieve gold investors of some uncertainty over how and when the I.M.F. would sell 403.3 tons of gold — about one-eighth of its total stock.
It also fueled speculation that other governments — including Beijing — might be ready to diversify their reserves, even at near-record gold prices, helping to soak up I.M.F. supply that the fund might otherwise be forced to sell on the open market.
"Central banks in India and China will be happy to accumulate gold at these levels," said Aaron Smith, the Asia head of the $1.65 billion technical trading fund Superfund. "I will not be surprised to see even some Southeast Asian banks buying gold."
Spot gold prices rose about $4, to $1,063 an ounce, Tuesday, just shy of the $1,070.40 record set last month, aided primarily by a falling U.S. dollar. Traders said the I.M.F. news could add to the market's upward momentum.
Although the I.M.F.'s plan to sell a share of its gold holdings to increase low-cost lending to poor countries had been flagged for a year before it was formally approved in September, both the speed of the deal and the buyer were a surprise.
India is the biggest consumer of gold, primarily in the form of jewelry and investment, but its central bank had given few indications of being a front-runner in the move to diversify into bullion.
The proportion of gold as part of its total foreign reserves had fallen in past decades, officials said.
India's foreign exchange reserves held at the central bank totaled $285.5 billion on Oct. 23, of which gold made up somewhat more than $10 billion. The latest purchase will lift its share of gold holdings to about 6 percent from near 4 percent — less than most of the developed world but four times China's share.
Bimal Jalan, a former governor of the Reserve Bank of India, said the move was aimed at increasing resources for the I.M.F., as India and China had promised to help raise "fungible resources" to help other developing countries.
"This transaction is an important step toward achieving the objectives of the I.M.F.'s limited gold sales program, which are to help put the fund's finances on a sound long-term footing and enable us to step up much-needed concessional lending to the poorest countries," the I.M.F.'s managing director, Dominique Strauss-Kahn, said in a statement.
A senior I.M.F. official, speaking on condition of anonymity because of the sensitivity of the matter, would not say whether other central banks had expressed interest in buying the remaining gold for sale. He said the I.M.F. would proceed as planned to sell the gold in the market if no other central banks came forward, but he reiterated that the fund would publicize its intentions before doing so to avoid disrupting the market.
Still, the threat of further open-market sales remained a source of concern for gold traders, who were mindful of the five-year pact among European central banks to sell down a maximum 400 tons a year of their holdings, an agreement that was renewed in August and included the I.M.F. volume.
The market's focus has now shifted to China as Beijing seeks to shift some of its more than $2 trillion in foreign exchange reserves away from the U.S. dollar.
A representative from the Chinese central bank was not immediately available for comment.
It is the first time since 2000 that the I.M.F. has sold gold to a central bank.--
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