By David Lew
Will China miss buying Gold from the International Monetary Fund (IMF)? It looks that China will miss the bus in buying gold from IMF as the latter is going ahead to sell 191 tonnes of gold soon in the open bullion market.

Ever since India bought 200 tonnes of gold from the IMF in November 2009, speculation has been rife in the bullion market that China that has ambitious plans to mop up gold reserves would jump into the fray and buy the remaining yellow metal stock from IMF.

But as gold price zoomed to record highs of $1,227 per ounce in December after India’s IMF gold buy, China has been waiting for a chance to somehow buy the rest of the IMF gold. The chance that China looked for was a crash in gold price. China said in various forums that the country obviously did not want to buy IMF gold for the high price that India paid for, and the high price that IMF expects its gold to be sold.

Officials of Chinese central bank—the People’s Bank of China—have been hinting that China would be comfortable buying IMF gold, or for that matter gold from the open market, for a price of $1,000 or less per ounce. “China has been waiting for gold prices to plunge to buy the IMF gold. But it looks gold price is not going to plunge below $1,000 per ounce in the nearest future. In that case, China has to either buy IMF gold from the open market around $1,120 per ounce or just miss the opportunity,” says Kevin Julian, a bullion analyst stationed in Beijing.

Julian says at the current market price of about $ 1,120 an ounce, the IMF gold to be sold would be worth nearly 6.9 billion dollars and “obviously, China feels that this is a bloody high price.” “Therefore, it looks that China will not be able or willing to buy even an ounce of IMF gold,” he added.

IMF members agreed in 2008 that the fund might sell an eighth of its gold assets in order to diversify its financial model so that it no longer relies on lending. Profits from the sales will be used to create an income-generating endowment that is part of the revamped IMF income model.

Certain banks participating in the Central Bank Gold Agreement have said the IMF gold sales can be accommodated under the agreed ceilings of 400 tonnes annually and 2,000 tonnes in total over the five years that started on September 27, 2009.

In September, IMF approved a total 403.3 tonnes of Gold for sale. In November 2009, India jumped into the fray to buy 200 tonnes of gold in a major private deal that sent gold prices to the dizzying height of $1,227 per ounce in early December.

Sri Lanka and Mauritius bought small quantities of gold—12 tonnes—from IMF in between. Now, the IMF has 191.3 tonnes of gold for sale.

Ever since India bought the IMF gold, speculation has been rife that China would also jump to buy the fund’s remaining gold. In the last few months, China has been aggressively pursuing a policy to build up gold reserves in the wake of declining US dollar value. Bulk of China’s foreign exchange reserves are in the US dollar.

In December, China announced that it plans to build up gold reserves to the tune of 10,000 tonnes from the current stock of 1,054 tonnes in the next ten years. China’s biggest ambition is to overtake the United States—the country with the largest gold reserves in the world—in gold possession.

But it looks that India has clearly beaten China in the IMF gold buying game. It is unlikely that China will soon decide to buy the remaining IMF gold for sale given the high price of gold.

According to IMF finance director Andrew Tweedie that gold sales are still available to state entities, meaning the Chinese central bank is free to bid and get the rest of the IMF gold.

”We still need to see what happens to the gold price during the second half of the sale before we can conclude that we have additional revenues,” Tweedie.

"The initiation of on-market sales does not preclude further off-market gold sales directly to interested central banks or other official holders," he added.

Will we be able to hear from the Chinese central bank on buying IMF gold this week? Let us wait and watch.

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

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