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IMF gold sale of 191.3 tn may lure Asian central banks

IMF gold sale of 191.3 tn may lure Asian central banks
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First Published: Thu, Feb 18 2010. 11 51 AM IST
Updated: Thu, Feb 18 2010. 11 51 AM IST
Singapore/Washington: The International Monetary Fund said it would soon begin sales of 191.3 tonnes of gold remaining in its plan to raise new resources for lending, with traders saying it may seek buyers among Asian central banks.
But a drop of 1% in gold prices after Wednesday’s news also rekindled worries about an increase in supply — nearly four months after India’s purchase of 200 tonnes boosted the country’s gold holdings to the 10th largest among central banks.
The sale weighed on the currency in Australia, which is the world’s No. 2 gold exporter, and was partly blamed for a drop in oil prices below $77 a barrel.
The open-market sales, which are part of a programme launched last year to boost IMF resources for lending, “will be conducted in a phased manner over time,” the Fund said, to avoid disruptions of the gold market. The Fund left the door open for central banks to keep buying gold directly from it.
“I will not be surprised if the Reserve Bank of India or other Asian central banks opt for it (IMF’s gold),” said Rupa Rege Nitsure, chief economist at Bank of Baroda in the Indian financial capital of Mumbai.
“After the global financial crisis, everybody knows that with a longer term perspective it is not desirable to have concentration of reserves in a any one currency. Everybody is trying to diversify.”
Gold slipped to $1,102 an ounce in Asia after volatile trade on Wednesday, when it hit an intraday high of $1,126.85 an ounce, its strongest since Jan. 20, before tumbling to below $1,110 after the IMF announcement
The price of gold has increased by 20% over the past two years. The prospects of more buying from central banks helped fuel a rally to a record above $1,200 early last December.
The IMF announced last year it would sell 403.3 tonnes of gold, about one-eighth of its total stock, to diversify its sources of income and increase low-cost lending to poor.
Until now, the gold has only been made available to central banks on a first-come-first-serve basis. So far, India — the world’s biggest consumer of gold — Mauritius and Sri Lanka have purchased a total of 212 tonnes of gold from the IMF.
“To be honest, the market has expected this news somewhere along the line. They are probably approaching several central banks, but probably not the European ones at the moment,” said Darren Heathcote, head of trading at Investec Australia.
Referring to worries about Greece’s fiscal health that weigh on the euro, he said, “They are probably a little bit strapped for cash, aren’t they?”
IMF to continue to sell gold
IMF finance director Andrew Tweedie told IMF Survey publication the average price for the three sales was a little over $1,050 an ounce, generating about $7.2 billion in proceeds and a profit of about $4.5 billion over the book value of the gold in the IMF’s accounts.
The IMF said central banks could continue to buy the gold, which would reduce the amount available for sale on the open market.
“We are still open to off-market sales, so that window has not closed,” Tweedie said, adding: “All that has happened now is that we are moving to also start on-market sales.”
He said the sales would be based on market prices.
The sales have been made within a newly agreed Central Bank Gold Agreement, which limits sales to 400 tonnes a year and 2,000 tonnes in total over five years beginning 27 September, 2009.
Tweedie said a key element of the on-market sales was that they would be carefully phased over time. “This is the practice that other central banks have followed successfully, and we plan to adopt a similar approach,” he added.
Analysts said the news took some wind out of the gold rally, but dismissed concerns the sales would have a lasting impact.
“I think they want to test the market, whether the central banks want to buy at this level. They haven’t sold the rest of reserves after the Indian buying,” said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.
“I think towards $1,000, you may see better demand,” he added.
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First Published: Thu, Feb 18 2010. 11 51 AM IST
More Topics: IMF | Gold | Commodities | Central Banks | Funds |