By David Lew
It is three months since India’s central bank—the Reserve Bank of India (RBI)—bought 200 tonnes of gold from the International Monetary Fund (IMF) for an astronomical price of $1,045 per ounce. India’s sudden decision to jump into the fray and purchase the yellow metal from IMF led to a historic surge in gold price.

Gold price boomed to hit the history’s highest of $1,227 per ounce by the end of November, exactly one month after India buying the IMF gold. The India purchase led to global comments and predictions suggesting that several centrals banks from countries ranging from China, Russia, Brazil to Sri Lanka were vying with each other to buy the remaining 203 tonnes of IMF gold.

Bullion sections of all newspapers sites and news portals were flooded with stories, columns and interviews during the month of December 2009, with global bullion experts and investors forecasting that China is the next country in line to buy the remaining portion of gold from IMF.

But since the New Year days, stories and speculations on whether China or any other central bank or country would buy the remaining IMF gold have come down. These days, there are hardly any articles speculating on who is going to buy the IMF gold. This week, gold price has also plunged from the historic high to touch the biggest one day loss since 2008. Gold is now trading around $1,055 per ounce, a little above the amount per ounce that India paid for buying the IMF gold.

Not much is heard these days on any other country or central bank trying to buy the remaining 203 tonnes of gold from IMF. Why is it that there is a golden silence of IMF gold sale?

Respected bullion analyst Mark Robinson says there is suddenly no talk about anyone buying the rest of IMF gold. “I feel the silence these days on IMF gold sale could be a well-knit strategy from China. The Chinese central bank is eager to buy IMF gold to shore up its foreign exchange reserves. But China is not willing to pay the kind of money that India paid to IMF to buy gold. China wants to buy IMF gold below $1,000 per ounce. It looks if gold price continues to fall like this way, soon you will find gold hitting below $1,000 per ounce and China will then jump into buying the IMF gold,” Robinson told Commodity Online.

Robinson argues that there is a feeling among central banks across the world that India paid a little too high price to buy the IMF gold and thereby put them in troubles. “No central bank wanted to touch IMF gold above $1,000 per ounce. So now that gold price is falling, central banks must be waiting for further falls to scout for IMF gold,” he added.

There is a point in what Robinson argues. India had no pressing need to buy IMF gold at a high price. But India’s unexpected buy put bullion competitor China in a quandary. Chinese central bank officials had informally told several bullion investors and analysts that the People's Bank of China was looking at buying IMF gold for around $800 per ounce.

Buying IMF gold at $800 per ounce may be a pipe dream for China. But bullion analysts in Beijing argue that if gold price continues to fall, China may be able to go for the IMF gold between $900-$1000 per ounce.

When India rushed to buy IMF gold in November last year, BNP Paribas Fortis/Virtual Metals Group had come out this commentary:

“The RBI had no pressing need for 200t of gold from the IMF - but the IMF has a pressing need to sell its 403.3t of gold to fund its activities. By coming to the assistance of the IMF in this way India achieves a couple of things. It ingratiates itself with the IMF, within whose powerful corridors this gesture will resonate in years to come. The purchase also means that the India/IMF gold pact is a useful signal to other central banks, who also might wish to make a nod of support in the direction of the IMF - it signals that- it’s all right, you can buy gold, no-one will think it absurd if you do it via the IMF.. And even after this 403.3t has been sold, the IMF will still possess 2,813.7t. Having sold some, it will be that much easier to sell more in the future, if the IMF management thought it sensible."

"Could it be that India has bought gold now in order to encourage others? –or at least pave the way for similar deals in the future? Among the other central banks who might wish, one day, to please the IMF by taking off its hands (at market prices) some surplus-to-requirements gold the leading candidate is China, for obvious reasons, given its huge foreign exchange reserves and rising superpower status. So far China’s official sector purchases of gold have been limited to taking it from local mine production and scrap- a much cheaper method than buying either IMF or open market gold.”

We do not know how long will this golden silence on IMF gold sale will continue. But if anyone rushes to buy IMF gold on the falling yellow metal prices, it is sure to help shoot up the gold price.

Will the silence on the remaining IMF gold purchase by any other central bank be broken in February? Wait and watch.

David Lew is a bullion commentator with Commodity Online. You can contact him at info@commodityonline.com