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Old November 6th, 2009 #96
Alex Linder
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Reserve Bank of India’s Gold Purchase From the IMF

by Michael S. Rozeff

India’s central bank, Reserve Bank of India, announced on Nov. 2, 2009 a purchase of gold from the International Monetary Fund (IMF):

"The Reserve Bank of India (RBI) has concluded the purchase of 200 metric tonnes of gold from the International Monetary Fund (IMF), under the IMF’s limited gold sales programme. This was done as part of the Reserve Bank’s foreign exchange reserves management operations. The purchase was an official sector off-market transaction and was executed over a two week period during October 19–30, 2009 at market based prices."

By my calculation, the bank disposed of about 2.3 percent of its June 30, 2009 foreign currency assets or about $7 billion worth, expressed in dollars. These assets grew tenfold between 1998 and 2007, and by only 20 percent since then. RBI’s gold reserves, at market value, were 3.85 percent of the total foreign currency assets before the purchase. They jumped by 60 percent. They become about 6.3 percent of the new lower amount of foreign currency assets.

We don’t know how many dollar assets RBI disposed of as compared with pound and euro assets. It’s likely to have been a large amount.

This transaction has a significant meaning that goes well beyond the dollar amounts involved, which are not that large. It means that a major central bank has actually disposed of dollar assets and prefers gold instead. It means that it regarded its dollar holdings as excessive. There are more central banks in the same position. They may do the same. China had been suggested again and again as the potential buyer of the 403 tonnes of gold to be offered by the IMF. India’s purchase was a surprise.

http://www.lewrockwell.com/rozeff/rozeff319.html