TOKYO, Nov 25 (Reuters) – Gold struck a record high for a second time this week, rising above $1,178 an ounce on Wednesday, as the dollar slipped and a newspaper reported that India was “open to buying” more gold from the International Monetary Fund.
Gold has jumped nearly 13 percent since the beginning of this month as investors poured money into the precious metal after India’s central bank announced it had bought 200 tonnes of bullion from the IMF.
The central banks of Russia and Sri Lanka have separately said they had bought gold to diversify their assets.
The market gained further on Wednesday after Indian newspaper the Financial Chronicle said the Reserve Bank of India (RBI) could buy the IMF’s remaining volume of gold, now the subject of negotiations.
Wed Nov 25, 2009 2:05am EST
It bought 200 tonnes for $6.7 billion on November 3. The Reserve Bank of India (RBI) may well buy IMF’s remaining hoard of 201.3 tonnes on acceptable terms, which are now under negotiation.
A government official said that the additional purchase would depend on the “successful pitching by RBI”. “RBI is an independent body, and the government does not interfere in its affairs. It will get the gold if its bid is successful and at the price it has offered,” said the official.
– India open to buy more IMF gold: Report (Economic Times)
– Gold at Record From New York to Shanghai as India May Buy More (Bloomberg)
– India may buy more IMF gold (Commodity Online)
RBI did not respond to Financial Chronicle questions if it was bidding for the remaining IMF gold. The purchase of the first lot of 200 tonnes, RBI had said at the time, was a part of its foreign exchange reserves management operations.
Responding to query from FC, an IMF spokesperson said the gold sale process was still under way and “there is no fixed timetable for completing the sale”. Its spokesperson further said that “the fund does not wish to comment on discussions with individual members.”
RBI has good reasons to further enrich its gold reserves. In just three weeks it has been able to benefit by as much as $800 million on the investment of $6.7 billion it made in buying 200 tonnes from IMF.
Since 1999 RBI has been periodically valuing its gold reserves at “prices close to the market”. It has not done so since it purchased the gold from IMF.
RBI bought the 200 tonnes at $1,045 an ounce. The transaction, from IMF to RBI, involved daily sales that were staggered over a two-week period, October 19-30, with each daily sale conducted at a price set on the basis of that day’s market price.
On Tuesday, gold prices stood at $1,168, an increase of 12 per cent over the price RBI paid. The market value of the gold, as of Tuesday, thus stood at $7.5 billion – indicating a cool gain of $800 million for RBI.
RBI holds its forex reserves in a basket of currencies expressed in dollar terms. It is able to earn only a nominal return on the dollar reserves.
In an article in FC on November 4, Guild Investment Management CEO Monty Guild listed the merits of buying of gold. “It helps China and India more because their responsibility for financing IMF grows as they become powerful financially. It is a method to get IMF to self-finance in the short run and save China and India money,” he wrote. Guild said that since most of the gold bought would be out of reach for the retail market, “gold prices will not get hammered”.
Prime minister Manmohan Singh on Sunday said there wasn’t a substitute for the dollar yet. “My own feeling is that we have not entered an era of irreversible shift in the economic strength of the US,” he said ahead of his visit to Washington.
On November 3, the day RBI bought IMF gold, finance minister Pranab Mukherjee told the economic editors’ conference that the government wasn’t preferential in its treatment to either the dollar or gold. The buying of gold had a sentimental significance, as the government had to pledge gold with the Bank of England in 1991 to borrow money to maintain imports.
The IMF executive board had on September 18 approved the sale of 403.3 tonnes of gold — one-eighth of the fund’s total gold holdings — half of which was eventually sold to India. Bank of Mauritius bought 2 tonnes, leaving 201.3 tonnes still with IMF. The limited sales are part of IMF’s efforts to put its finances on a firm footing and raise money to lend to low-income countries.
By Mandakini Raina Nov 24 2009 , New Delhi
Source: Financial Chronicle