The Reserve Bank of India (RBI) has concluded the purchase of 200 tonnes of gold from the International Monetary Fund (IMF) at an estimated price of around Rs. 31,490 crore ($6.70 billion), under the IMF’s limited gold sales programme.

“The transaction, which is in the process of being settled, involved daily sales that were phased over a two week period during October 19-30, with each daily sale conducted at a price set on the basis of market prices prevailing that day. The total sales proceeds are equivalent to $6.70 billion,” IMF stated on Monday.

Under the Fund’s Articles of Agreement, all gold sales must be conducted at prices based on market prices, including direct sales to official holders as in the case of this transaction.

“This was done as part of the RBI’s foreign exchange reserves management operations,” the apex bank stated on Tuesday. As India bought half the quantity offered by the IMF, this purchase is expected to boost the confidence in bullion among investors. However, this sale, according to market participants, will not have an impact on domestic bullion prices.

The Executive Board of the IMF, on September 18, announced its decision to sell 403.3 tonnes (or 12.97 million fine troy ounces) of gold as a central element of its New Income Model and to increase its resources for lending to low-income countries. This represents one eighth of the Fund’s total holdings. The IMF also decided that the initial offer of the sale of the gold would be directly to official holders, including central banks.

Foreign exchange reserves held by the RBI was at $285.50 billion as on October 23, of which gold comprised more than $10 billion. Now with the current purchase from the IMF the share of gold in its foreign exchange reserves is expected to go up to around 6 per cent of total foreign exchange reserves, that is, the gold reserve to touch 557.7 tonnes from 357.7 tonnes.

Even though India is the world’s biggest consumer of gold, its gold reserves — with the central bank — are much less than most of the developed world. However, India’s gold reserves are higher than China’s share. But China, recently, emerged as the world’s biggest producer of gold, pushing the U.S. to the second position. The RBI’s purchase of gold surprised markets as the Chinese officials, reportedly, have been in talks with the IMF to shift some of its more than $2 trillion in foreign exchange reserves to gold, in a move to be away from the US dollar.

Gold played a central role in the international monetary system until the collapse of the Bretton Woods system of fixed exchange rates in 1973. Since then, the role of gold has been gradually reduced. However, it is still an important asset in the reserve holdings of a number of countries, and the IMF remains one of the largest official holders of gold in the world.

“I strongly welcome this transaction with the Reserve Bank of India,” IMF Managing Director Dominique Strauss-Kahn stated. “This transaction is an important step toward achieving the objectives of the IMF’s limited gold sales programme, 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”


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