IMF Sells Gold to India, First Sale in Nine Years

By Sandrine Rastello and Kim Kyoungwha

Nov. 3 (Bloomberg) -- The International Monetary Fund sold 200 metric tons of gold to the Reserve Bank of India for about $6.7 billion, its first such sale in nine years.

The transaction, equivalent to 8 percent of global annual mine production, involved daily sales from Oct. 19-30 at market prices and is in the process of being settled, the IMF said in a statement yesterday. The average price to India, the biggest consumer, was about $1,045 an ounce, an IMF official said on a conference call. Gold for immediate delivery gained 0.2 percent.

“The fall in the U.S. dollar seems to be pushing all the central banks to strengthen their portfolio with gold,” said N.R. Bhanumurthy, professor at the National Institute of Public Finance and Policy in New Delhi. “Gold is a safe store of value compared to the U.S. dollar.”

The IMF sale accounts for almost half the 403.3 tons that the Washington-based lender in September agreed to sell as part of a plan to shore up its finances and lend at reduced rates to low-income countries. Asian nations, which have amassed stockpiles of foreign currency reserves since the 1998 financial crisis, have shown increased interest in diversifying out of U.S. assets as the dollar loses value against other currencies.

Gold for immediate delivery gained to $1,061.60 an ounce at 3:42 p.m. in Singapore and was about $9 below its record $1,070.80 an ounce reached Oct. 14.

Concession Lending

“The most important thing is that people want gold even at these prices,” said Ghee Peh, head of mining research, with UBS AG in Hong Kong. “There’s good support for prices for now” from the IMF’s disposal of bullion, he said.

Proceeds from the sales and other IMF resources as well as individual contributors would help pay for discounted interest rates on loans to low-income countries, the IMF said in July. It plans to grant as much as $17 billion in extra loans to poor nations through 2014. The 403.3 tons the IMF agreed to sell amount to one-eighth of its stockpile.

“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 concession lending to the poorest countries,” IMF Managing Director Dominique Strauss- Kahn said in an e-mailed statement.

Reserve Management

The gold purchase was done as part of Reserve Bank’s foreign exchange reserves management operations, the central bank said in a statement on its Web site today.

India’s foreign-exchange reserves advanced $684 million to $285.5 billion in the week ended Oct. 23, the central bank said Oct. 30. That included foreign-currency assets of $268.3 billion, gold reserves of $10.3 billion and the special drawing rights with the IMF.

“There seems to be consensus among the central banks that it’s better to cut down on currency holdings and diversify into assets like gold, which has upside potential,” Krishna Reddy, a precious metal analyst at Way2Wealth Commodities Pvt. said in Mumbai. “The Reserve Bank of India gold purchase is a clear reflection of this belief.”

China, the world’s biggest gold producer, has increased reserves of the metal by 76 percent to 1,054 tons since 2003 and has the fifth-biggest holdings by country, Hu Xiaolian, head of the State Administration of Foreign Exchange, said in April.

The nation may purchase some of the 403.3 tons of gold being offered by the IMF, Market News International reported in September, citing two unidentified government officials.

More Sales

The lender has said it is ready to sell directly to central banks and later make transactions on the open market if necessary. The IMF official declined to say yesterday whether other central banks have expressed interest in purchases.

The IMF, which helped shore up economies from Pakistan to Iceland over the past year, has sold gold on several occasions. The last transaction was authorized in December 1999 and took place off-market between then and April 2000.

“Gold production has been declining for the past seven years, while demand, particularly the investment demand has been growing steadily,” Way2Wealth’s Reddy said. “Central banks and even ordinary investors want to own more gold.”

To contact the reporters on this story: Sandrine Rastello in Washington at srastello@bloomberg.net; Kyoungwha Kim in Singapore at Kkim19@bloomberg.net.