Last Updated : 03 July 2009 at 18:05 IST

IMF gold no worry! Bank on India, China demand

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By Geena Paul
BEIJING/MUMBAI: Where will be all the Gold to be sold by International Monetary Fund later this year? Investors must be wondering what will happen to that gold which is supposed to be released by the IMF in a few months’ times. IMF will sell around 400 tonnes of the yellow metal following the clearance by G8 nations.

But analysts are not worried about the 400 tonnes of gold as they feel that this will not affect the market much. The reason for their assumption is India and China.

Because India is all set to import around 600 tonnes of gold in this year and China, as it claimed, is on a gold buying spree with already stocking up a huge quantity of the metal. Again, it has further plans of buying another $80 billion worth of gold this year.

The 600 tonne import of India is almost 25% of the total gold output in the world for the year. And China’s new found love for the metal will still keep the demand for the metal up.

That is why investors and market analysts are not worried much about the Gold prices crashing when the IMF downloads the 400 tonnes.

This means despite the IMF gold, there will be huge demand for gold. And, if gold witnesses huge demand, then gold miners are also set to reap rich dividends. This will result in gold mining companies’ stock soaring in equity markets. And, some market savvy investors can make use of this opportunity to invest in gold stocks to cash in on the world’s new rush for gold.

The IMF will sell gold at the market price when the sales are conducted, and the sales could be phased over time to avoid market disruption as noted above.

When the new income model was endorsed by the board of governors in May 2008, the price assumed for the purpose of making medium-term income projections was $850 per ounce, which was based on current and historical developments in gold prices at that time. However, in practice, the price realised for the proposed sales may be above or below this assumption depending on market developments.