Washington: The International Monetary Fund said on Monday it sold 200 tonnes of gold to the Reserve Bank of India for $6.8 billion, quietly executing half of a long-planned bullion sale that had threatened to slow gold's rally.
While the IMF's plan to sell some of its gold holdings had been flagged for a year before it was formally approved in September, the speed of the deal and the buyer were a surprise for traders, who had expected China – not India – to be the leading contender as Beijing diversifies its vast reserves.
The sale, which an IMF official said was concluded at an average price of about $1,045 an ounce over a two-week period in the latter half of October, will relieve the market of some of uncertainty over how and when the fund would execute its plan to sell 403.3 tonnes of gold, about one-eighth of its total stock.
"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," IMF Managing Director, Dominique Strauss-Kahn, said in a statement.
While the threat of IMF and central bank sales did not stop gold prices from soaring to a record high $1,070.40 last month, aided by a falling US dollar, traders said the IMF news could add to the market's upward momentum.
"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 commodities strategist at Commonwealth Bank of Australia David Moore.
Gold rose about 0.4 per cent to $1,063 an ounce on Tuesday.
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.
India's foreign exchange reserves held at the central bank totalled $285.5 billion on October 23, of which gold comprised more than $10 billion. The latest purchase would appear to lift its share of gold holdings to an estimated 6 per cent or so, much less than most of the developed world but four times China's share.
No market disruption
A senior IMF official, speaking on condition of anonymity, told a conference call the gold sales were conducted daily over a two-week period from October 19-30, to "give some protection to short-term fluctuations in the market."
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The official said India's central bank paid on average about $1,045 an ounce for the gold and the transaction would be paid in hard currency and not in IMF Special Drawing Rights, the IMF's internal unit of account.
The IMF official declined to say whether other central banks have expressed interest in buying the remaining 203.3 tonnes of gold on tap for sale.
He said if no other central banks came forward, the IMF would proceed as planned to sell the gold in the market, a move that traders say could put pressure on prices in a market where total global demand came to just under 4,000 tonnes last year.
He reiterated that the IMF would publicise its intentions before any open market sales to avoid market disruption.
The market's focus is now likely to shift to China, which has reportedly been in talks with the IMF about buying some of the fund's bullion as Beijing seeks to shift some of its more than $2 trillion in foreign exchange reserves away from the US dollar.
China, the world's biggest producer of gold, revealed earlier this year that it had quietly lifted its own government holdings of gold stocks to 1,054 tonnes from 400 tonnes when it last reported its holdings in 2003.
It is the first time since 2000 that the IMF has sold gold to a central bank. Between December 1999 and April 2000 in separate transactions, the IMF sold a total of 12.9 million ounces of gold to member countries Brazil and Mexico.
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