How India's 200 Ton Purchase of IMF Gold Affects You

In a move that surprised many traders, the International Monetary Fund ended up selling 200 tons of gold to the Reserve Bank of India for $6.7 billion this month. Many expected most, if not all, of the sale to go to China. However, about half the original amount of gold, roughly 200 tons, is still up for sale and could go to China, another buyer, or be sold on the open market.

What matters to you, dear reader, is that the vast sum of gold was unloaded as an official sector off-market transaction, taking place over 11 days in late October at market-based prices. According to Eugen Weinberg of Commerzbank, this means that the “gold was kept off the market and sold directly to central banks so potential sales on market are limited by this.” In plain English, it appears that the IMF sale, while bullish for gold prices, has not directly impacted the physical market.

That said, the excitement alone behind the large purchase likely played a role in the spot gold price hitting a new all-time high today at $1,081 a troy ounce.

Several other factors contribute to gold’s positive price direction. First, the IMF still has half the gold left to sell, and that remainder could potentially be sold on the open market (although China and perhaps Russia remain potential buyers). Also, it provides further evidence that central banks are increasing their gold holdings and are willing to do so at current prices.

For its part, India has increased its gold reserves to become the tenth largest gold holder among central banks. It was 12th before the purchase.

More details are available in Reuters coverage of India buying half of the IMF’s gold for sale.