India buys half of IMF's gold for sale, pays US$6.7b

India buys half of IMF's gold for sale, pays US$6.7b
Published: 2009/11/04

MUMBAI/WASHINGTON: The International Monetary Fund (IMF) has sold 200 tonnes of gold to the Reserve Bank of India for US$6.7 billion (US$1 = RM 3.42), quietly executing half of a long-planned bullion sale that has threatened to slow gold's ascent.

The sale, which surprised traders who expected China to be the leading buyer, will relieve the gold market of some uncertainty over how and when the IMF would sell 403.3 tonnes of gold, about one-eighth of its total stock. The deal will increase India's gold holdings to the tenth largest among central banks.

It also fuelled speculation that other governments - including Beijing - may be ready to diversify their reserves even at near-record gold prices, helping soak up IMF supply that the fund may otherwise be forced to sell on the open market.

"Central banks in India and China will be happy to accumulate gold at these levels. I will not be surprised to see even some Southeast Asian banks buying gold," Aaron Smith, Asia head of the US$1.65 billion technical trading fund Superfund, told Reuters.

Spot gold prices rose about US$4 to US$1,063 an ounce yesterday, just shy of last month's US$1,070.40 record high, aided by a falling US dollar. Traders said the IMF news could add to the market's upward drive.

"The fact that they've sold the gold to India would suggest there's going to be fewer official sales by the IMF on the market. So that might be a positive theme for the gold price," said David Moore, commodities strategist at Commonwealth Bank of Australia.

Although the IMF's plan to sell a share of its gold holdings in order 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.

Although India is the world's biggest consumer of gold, primarily in the form of jewellery and investment among its billion-plus people, 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 over the past several decades, officials said.

India's foreign exchange reserves held at the central bank totalled US$285.5 billion on October 23, of which gold comprised just over US$10 billion. The latest purchase will lift its gold holdings from near 4 per cent to about 6 per cent, much less than most of the developed world but four times China's share.

Former Reserve Bank of India governor Bimal Jalan said the move was aimed at boosting resources for the IMF as both India and China had promised to help raise "fungible resources" to help other developing countries.- Reuters