IMF Sells 200 Tonnes of Gold to India for $6.7 Billion

The gold bull market becomes more interesting with every day. Based on disastrous economic fundamentals, it now seems to be able to withstand hits of any size.

In a surprising move the IMF announced on Tuesday that it had sold 200 metric tons of gold to India in the last two weeks, valuing the sale at $6.7 billion or 4.2 billion Special Drawing Rights (SDR).

The Reserve Bank of India had last released gold holdings of 357.8 metric tons as of March 2009. This purchase increases India's official gold reserves by more than 55% to 557.8 tons.

According to the release India bought the hoard between October 19 and 30 at daily market prices. The sale was executed directly after gold's new record of $1,072 per ounce on October 14, according to Bloomberg figures.

click to enlarge

GRAPH: Who will win the bet? Checking the chart, India bought the 200 tons between $1,030 and $1,066. India may see itself as a huge winner in the short, medium and long term, having upped its gold hoard by 55% to 557.8 tons according to figures from the Reserve Bank of India's (RBI) annual report 2008/2009 (pdf).

With this sale the IMF has sold half of the intended sales volume of 403 tons, announced jointly with the latest Central Bank Gold Sales Agreement in August. It will now be most interesting to see who will grab the other 203 tons. Both Russia and China had announced in March that they will put a higher emphasis on gold reserves as a share of total forex reserves. Both countries have satisfied their demand from domestic production so far. China has become the biggest gold producer in the world, mining more than 300 tons of gold annually, outpacing energy-strapped South Africa.

The IMF's press release gives no room for speculation. IMF boss Dominique Strauss-Kahn stated:

“This transaction is an important step toward achieving the objectives of the IMF’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 IMF is eager not to unsettle gold markets and will probably sell the remainder directly to central banks, it said further.

As previously announced (see Press Release No. 09/310), in accordance with the guiding principle of avoiding disruption of the gold market, the IMF’s Executive Board adopted modalities for the gold sales consistent with guidelines it had earlier established. In particular, the Fund is standing ready for an initial period to sell gold directly to central banks and other official holders that may be interested in such sales. Thereafter, on-market sales of any amounts remaining from the 403.3 tons would be conducted in a phased manner over time, following the approach adopted successfully by central banks participating in the Central Bank Gold Agreement.

Comments

[GMiki1:]

And right this minute, I'm watching both precious metals jump. Got gold?

Nov 03 10:47 AM

[frdm45:]

Hmmmm......I just read they bought it at about $1045, seems rather high, why do you think they'd rather pay up than buy on a dip......do you reckon they think there will be a physical supply squeeze??? Go get your gold out of Kitco...........

Nov 03 11:34 AM

[optionsgirl:]

That is almost half of what the IMF is slated to sell! I believe it was 408 tonnes, total available for sale.

Nov 03 11:35 AM

[tripleblack:]

Interesting. And just recently, India became a net seller of gold when they had been a net consumer for decades.

Two seperate trends here, one where the individuals are selling some of their gold (probably alot of that 22 karat jewelry) during the recession, while the central bank is protecting their situation with more gold.

Nov 03 11:38 AM

[yellowhoard:]

WOW!

Nov 03 11:40 AM

[yellowhoard:]

Anybody notice that gold is way up and the DOW is sinking today?

Nov 03 11:41 AM

[User 283977:]

So people are pulling money out of equities and into gold? Should Oil be dropping too?

Nov 03 11:50 AM

[Timothy Don...:]

a lightly different spin can be found here: www.goldalert.com/stor...

i think that this is yet another signal prefacing the breakout of the gold price.

Nov 03 12:09 PM

[DiggerUK:]

The supporters of manipulation and conspiracy theories, who have been claiming IMF gold sales would lower the pog, seem to be very quiet.

Can we now get back to the serious business of good old fashioned c0ckup and beer.

Who is going to get the next tranche of gold.
Japan? Australia? Saudi? Brazil? Iceland?
Place your bets now ladies an gentlemen.

Nov 03 02:18 PM

[Mad Hedge F...:]

cgy ) News broke this morning that, out of the blue, the Reserve Bank of India bought 200 metric tonnes of gold from the IMF for a handy $6.8 billion. The news set the gold market on fire, boosting the December futures to an all time high of $1,088. It is the largest transaction in the barbaric relic since the Alaric’s Visigoths sacked Rome in 410 AD. It has been public knowledge for some time that the IMF was looking to unload 403 tonnes of the yellow metal in order to fund lending to poor countries. Many traders say this threatening overhang is why gold failed to definitively break out to the upside this year, despite six attempts. The expectation was that China would take this hoard as part of a broader diversification away from the dollar. Bringing India into the fray, which had no history of stockpiling gold, is a whole new kettle of fish. Not only does this raise the prospect of a bidding war with China for more gold reserves, other cash rich emerging market central banks are likely to join the fray as well, no doubt panicked by the ominously rising whirr of printing presses in the developed countries. My short term goal for gold was $1,200, but I now have to raise that to the $1,300 favored by some chartists in view of the new dynamics. If you want to see my long term target, take a look at the chart below, which has gold zeroing in on its inflation adjusted all time high of $2,358.

Nov 03 07:47 PM

[rick12345:]

Gold's performance over the last month or so reminds me of the Y2K bug. Now let me look back in the history book and see how that one turned out.
Speculation inflates asset prices while reality quickly deflates them. What was that bubble that burst in 2006/2007? I can't quite remember.

Nov 04 03:25 AM

[suhas katti:]

Not bad for a country who had to sell its gold reserves about more than a decade ago to avoid ts balance of payment crisis !!! India growth story is still strong !!!! Traditionally, Indians are biggest consumers of gold - for gold jewellery purposes rather than for trading / investment purposes. Suhas Katti.

Nov 04 07:04 AM

[The Recusant:]

Hmmm...let's see, buy 200 tons of gold that has increasing value and pay for it with 6.8 billion of devaluing U.S. dollars. Sounds like a deal to me! Could be noted as the first move to dump U.S. dollars by a central bank.

Nov 04 12:50 PM

[Down Time:]

Best answer!


On Nov 04 12:50 PM The Recusant wrote:

> Hmmm...let's see, buy 200 tons of gold that has increasing value
> and pay for it with 6.8 billion of devaluing U.S. dollars. Sounds
> like a deal to me! Could be noted as the first move to dump U.S.
> dollars by a central bank.

Nov 04 09:45 PM