Wednesday, November 4, 2009

IMF Sells Gold to India: Was That Paid With SDRs or Cash? Why Did India Receive $4.3B From The IMF in July?

Today we learned that the IMF had been selling 2000 tons of gold to India during the period October 19-30, 2009. In the end the transaction was valued at $6.7B, for an average price of around USD $1,045 per ounce. Read IMF press release.

The total global market of gold reserves is around $1.4T-$1.5T. This by itself is very small compared with the amount of money in circulation. Derivatives alone are worth $500T.

Question number 1: What is the IMF going to so with the paltry amount of $6.7B!? Why all the hoopla about these sales?

Question number 2: Did India pay with actual USD cash, or with SDRs? There are conflicting reports.

The Daily Pfennig says: "... But the real beef came from the announcement that the Reserve Bank of India was buying the 200 tons of Gold from the IMF... I know, I know, I told you yesterday that I thought it would be a "wash" for the dollar and the Gold price... But that was before I learned that the Reserve Bank of India paid for their $6.7 Billion dollars worth of Gold with... SDR's!"

Business Day of SA says: "An IMF official said the sale was concluded at an average price of about $1045 an ounce and that the transaction would be paid in hard currency and not in IMF Special Drawing Rights."

Question 3: India received $4.3B in SDRs from the IMF just at the end of July (article). Were these SDRs used to pay for the gold? Why was India given $4.3B and is now buying gold?

Question 4: Will India take possession of the gold, or do they just change a sticker on the gold at the IMF vault?

Many questions and no answers: it is all very fishy and convoluted. Gold is way to manipulated and such a small market. A better answer is, who cares. Stay away, or use straddles! See our many articles on these.

Note that we track gold, silver and precious metals miners live here as well as ETFs as part of our tracking sites.

Thanks to Seamus for the heads up.

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Deming said...

Chuck Butler at the Daily Pfennig wrote "confusion is due to the fact that reports are converting the SDR into USD for readers."

Also cited:

From the Economic Times of India:

"In its official release, IMF has said that the total sales proceeds are equivalent to US$ 6.7 billion or SDR 4.2 billion."

The Times goes on further:

“ . . . these purchases are reckoned to be carried out from the $4.8 billion worth SDR allocation that the RBI had obtained from the Fund earlier this year. The IMF had allocated $4.8 billion by way of general allocation of special drawing rights (SDR) — the reserve currency with the IMF — in August this year as part of its SDR 161.2 billion package allocated to member countries.


The Shocked Investor said...

Thank you Seamus. If the India Times is correct, then it was mostly SDRs that were used for payment and not cash, and those SDRs could well have come from the IMF allocation given to India earlier in July.

The question is what exactly was this SDR allocation? I can't believe if would have been a free gift given to India, paid from all taxpayers in the world, including the U.S. How ironic would that be.

Paul said...

Great info!

anupamshetty said...

Seriously! Why would taxpayers from countries in recession give a free gift to India when its own economy is doing well?
There have been attempts by India and China to offload some of their dollar reserves to gold, in anticipation of the long term fall in the value of the dollar.

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