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India Buys Half of IMF's Gold for Sale! |
By Mike Hewitt
On November 3, 2009, the Reserve Bank of India
(RBI) announced the purchase of 200 tonnes of gold from the
International Monetary Fund (IMF) for US$6.7 billion. This represents
the largest one-time central bank purchase in recent history,
reminiscent of the period of steady US purchases of bullion in the 1930s
and 1940s. The purchase was an official off-market transaction and was
executed during October 19 - 30 at market-based prices averaging
US$1,045 an ounce.
The deal came as a surprise to many analysts
who speculated that China would be the
most likely buyer of IMF's long-planned bullion sale of 403.3
tonnes. The deal raises India to the twelfth largest single holder of
bullion. India is the largest consumer of gold and in addition to the
official gold reserves of the RBI, it is estimated that its citizens own
another
15,000 tonnes in private holdings.
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. This latest purchase will lift
India's share of gold holdings from nearly four percent to approximately
six percent.
News of the purchase resulted in a sharp lift
in the price of gold, bringing it to a new nominal high in terms of US
dollars for several reasons:
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Reduced anxiety over the possibility of a
large IMF bullion sale on the open market.
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Further evidence of central banks switching
from the position of net sellers to net buyers.
-
The European central bank agreement to limit
gold sales to 400 tonnes per year is now half completed as it includes
the IMF.
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Increased speculation that China will
purchase the remaining half of the IMF gold for sale as part of a
strategy to diversify out of US dollars.
The speed of India's purchase following the
formal approval in September for the IMF to sell a portion of its gold
holdings also surprised investors. This event renews confidence in the
metal's value and will likely encourage increased participation in the
gold market.
