India Buys Gold; Indians Don’t

Bullion Vault

How the Reserve Bank of India’s 200-tonne IMF gold purchase contrasts with private Indian dealing…

WITH THE Indian central bank, the Reserve Bank of Indiam buying 200 tonnes of IMF gold at $6.7 billion, speculation is rife that the bank must have sold US Treasuries bills to grab the yellow metal, reports Commodity Online from Mumbai.

According to a report in the Economic Times, India’s leading business daily, the RBI may have sold US Treasuries to fund its gold purchase from the International Monetary Fund. This purchase would suggest the Indian monetary authorities are seeking to change the composition of their foreign reserve holdings, most likely diversifying away from US Treasury bonds, the report said.

Such a move would be prudent, as India needs liquid assets to hold as a buffer against sudden, destabilizing capital outflows. The central bank, however, refrained from disclosing the details of the transaction in its weekly statistical supplement released last Friday.

According to the RBI release, total foreign exchange reserves including gold and SDR (special drawing rights – the notional “reserve currency” held by central banks at the International Monetary Fund) dipped by $1.129 billion to $284.4 billion during the week ended October 30.

India concluded its “off market” purchase of IMF gold that day, after two weeks of steady buying at “market-related” prices averaging around $1045 an ounce. While foreign currency assets dipped by $1.580 billion, the value of SDRs dipped $25 million. The value of gold in reserves rose $484 million to $10.8 billion.

So going by the current composition of reserves comprising various foreign currency assets, SDRs, Gold Bullion and reserves with the IMF, gold – which is valued at the month-end bullion prices at the London Gold Fix – has for long hovered around $10 billion and roughly accounts for 4% of the total reserves. But had last month’s purchase been reflected in the latest reserves figures, the value of gold would have gone up by at least one half to 6%.

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