Column: More about IMF than about RBI

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: How important is a transaction of 200 tonnes of gold from an economic standpoint? At the moment, we have a case of the IMF selling gold and RBI purchasing the same at a value of around $6.7 billion.

There is another lot of gold (of similar amount) which will also be up for sale soon. Such transactions are not very common, but at the same time do not have any shock value. To begin with, there was some movement in the gold market, which stabilised subsequently. The last time the IMF had indulged in such a sale was in 1999-2000 when Mexico and Brazil were the purchasers. Still, this transaction is quite interesting for several reasons.

First, the sale of gold by IMF is significant because it evidently means that the Fund needs money to carry out its operations. They have tried to get members to supply funds but the sale of gold, which would otherwise have been residing in their lockers, is probably a prudent step. We are told that China may be the potential buyer for the second lot. Hopefully the money generated would be used for its core purpose—correcting imbalances in the balance of payments of countries. The IMF has come under scrutiny of late for losing its relevance at a time when global capital flows have taken care of forex issues of several countries.

Did the IMF get a good deal? The answer is yes, because when they had thought up this plan, the price was around $850/ounce. This means that the sale at $1,045 is a bonus of just over 20%.

Second, from our point of view, this purchase can be taken with a sense of pride, since we are increasing our gold reserves. In terms of share in forex reserves, as per latest

RBI data, such a shift would mean an increase from 3.6% to 6%. But, does this mean anything significant? Not really.

We have actually purchased gold at a time when the price has crossed the psychological $1,000/ounce barrier.