Central banks plan to raise gold holdings in view of dollar’s fall.
The Reserve Bank of India (RBI) today said it had bought 200 tonnes of gold from the International Monetary Fund (IMF) for around $6.7 billion. The deal would take RBI’s gold holding to the 10th largest among central banks.
India bought nearly half the 403.3 tonnes gold that the IMF decided to sell in September to raise resources for lending to low-income countries. Over the next five years, the multilateral body intends to provide an additional assistance of $17 billion to such countries.
The transaction, which was in the process of being settled, involved daily sales by the IMF between October 19 and 30, with each sale conducted at a price set on the basis of the market price prevailing that day.
The purchase will increase RBI’s stock of the precious metal by 56 per cent to 557 tonnes from 357 tonnes.
The deal comes 18 years after India pledged gold with the Bank of England to meet external obligations.
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The deal represented one-eighth of the IMF’s total gold stock. This is the first time since 2000 that the IMF has sold gold to a central bank. Between December 1999 and April 2000, in separate transactions, the IMF had sold 12.9 million ounces of gold to Brazil and Mexico.
“The fall in the US dollar seems to be pushing all central banks to strengthen their portfolio with gold,” said NR Bhanumurthy, professor at the National Institute of Public Finance and Policy. “Gold is a safe store of value compared to the US dollar,” he told Bloomberg.
India’s foreign exchange reserves were $285.5 billion on October 23, of which gold accounted for just over $10 billion. The purchase will lift the share of gold from near 4 per cent to about 6 per cent, much less than most of the developed world but four times China’s.
“This 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 concessional lending to the poorest countries,” IMF Managing Director, Dominique Strauss-Kahn said in a statement on Monday.