Why China failed to buy IMF gold reserves
Published on: December 22 2010 12:40 GMT
NEW YORK (Commodity Online): 2010 bullion headlines have been dominated by one major news items, often: the gold reserves sale by the International Monetary Fund (IMF). And 2010 is going to end with the news now that IMF has fully sold the 403.3 tons of gold.
Now that the gold sale by IMF is all over, it is interesting to look at who all got the gold reserves that were on sale by the global organization.
On Tuesday, IMF said that is has concluded the sale of 403.3 tons of gold, which was around 13 percent of its gold reserves to central banks and bullion market participants ever since the IMF executive board approved the gold sale in September 2009.
While more than half of the IMF gold sale was bought by the central banks of India, Sri Lanka Mauritius and Bangladesh, the most surprising aspect was the exclusion of China from the IMF gold sale party.
China, the largest producer of gold, had announced early this year that it would considerably step up gold reserves in the next decade to the tune of 10,000 tons. Currently, the Chinese gold reserves stand less than 1200 tons.
Even though there were rumors that the People’s Bank of China—the Chinese central bank—would bid for IMF gold reserves, nothing happened in 2010. “It is a big surprise as to why China did not buy the IMF gold reserves on sale. There has been no official communication to this effect. I feel high prices of gold forced China to skip participating in IMF gold sale,” David Lew, a bullion expert based in Beijing told Commodity Online.
He said China could have easily acquired as much gold reserves from IMF like India.
There were rumours earlier that China would bid for the IMF gold in the second phase of sale. But, according to analysts, China did not buy the gold as it was not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility.
Some analysts had earlier said China would purchase the IMF gold in an effort to diversify its dollar asset-dominated foreign exchange reserves. According to estimates, over 70 percent of China’s $2.4 trillion foreign exchange reserves are in dollar assets.
According to George Milling-Stanley, head of government affairs for the World Gold Council (WGC), people who believed China would be the buyer of the IMF gold hadn’t really thought it through.
“China has been buying local gold mine production and the production of local refineries – whether that is by-product gold or recycled gold – for a number of years,” said Stanley. “They have been gradually building gold reserves, not by cashing in dollar assets which might upset the dollar market but they have been quietly doing it by buying local gold production,” he said.
It was rumored that China and Russia were interested in purchasing the IMF gold, but it appeared that this would be at a discount. Statements from a Chinese commercial banker last year indicated that the China government was more interested in buying gold in yuan from domestic producers (majority are state-run) rather than buying gold in the open market with dollar reserves.
Now that China did not figure out on the IMF gold sale radar, which are the countries that got away with the IMF gold in 2010?
During October and November 2009, IMF sold a total of 212 tons in this manner to the Reserve Bank of India, the Bank of Mauritius, and the Central Bank of Sri Lanka. On September 7, 2010, the Fund sold 10 metric tons to the Bangladesh Bank.
IMF said on Nov. 29 it told 19.5 tonnes of gold in October, but it has not yet provided details of sales in November or December.
According to the modalities for the gold sales adopted by the Executive Board, the Fund initially stood ready to sell gold off-market directly to central banks and other official sector holders at market prices.
The strictly limited sales of Fund gold approved by the Executive Board is to help put the financing of the IMF on a sound long-term footing, and also help to boost the Fund’s capacity to provide concessional loans to low income countries.
An endowment funded with the profits from gold sales is a central component of the new income model that the Board endorsed in April 2008. The new income model would provide more diverse income sources that are better aligned with the variety of functions performed by the Fund.
Resources linked to the gold sales will also be used indirectly to increase the Fund’s capacity to provide concessional loans to low income countries.
Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold
Tags: Capital Gold Group, gold, gold bullion, Gold coins, Gold Group, gold IRA, gold news, gold prices, IRA gold
goldgroupnews.wordpress.com 