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Mumbai, Washington: The International Monetary Fund has sold 200 tonne gold to the Reserve Bank of India for $6.7 billion, quietly executing half of a long-planned bullion sale that has threatened to slow gold’s ascent.
According to finance minister Pranab Mukherjee, India now has the fifth largest stock of forex reserves to buy gold. However, he said investors should not read too much into it. “There is no need for misplace overconfidence on gold,” he said at the economic editors’ conference on Tuesday.
The deal, which surprised traders who expected China to be the most likely buyer, will relieve the gold market of some uncertainty over how and when the IMF would sell 403.3 tonne 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 trading fund Superfund, said.
The IMF gold will not physically come to India but enter into the RBI books in the form of an accounting entry.
Spot gold prices earlier rose by nearly 1%, but later reversed those gains to trade little changed at around $1,058 an ounce on Tuesday, within striking distance of last month’s $1,070.4 record despite a rallying dollar. “Its potentially bullish from several points of view,” said Commerzbank analyst Eugen Weinberg. “Gold was kept off the market and sold directly to cental banks so potential sales on market are limited by this. Secondly, it showed large buyers are ready to accept the current price levels. Thirdly, the central banks are increasing their gold reserves. Last but not least the central bank gold agreement sales of 400 tonne... is half empty already.”
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