By David Lew
India has created big news in the global bullion market by buying 200 tonnes of gold from the International Monetary Fund (IMF) by paying an astronomical price per ounce for the yellow metal: India paid $1,045 per ounce of gold to IMF.

India’s RBI may be happy these days ever since the IMF gold buy, as prices of the precious metal have been surging, touching nearly $1150 per ounce this week—more than $100 per ounce profit for India, if you look that way.

Now IMF has 203 tonnes of remaining gold to be sold. Several central banks from China, Russia, Brazil, and even a small country like Sri Lanka are said to be in the fray to buy the rest of the IMF gold reserves. You cannot even rule out India itself buying out the complete stock of IMF gold reserves, if you examine the way India has acted early this month.

Gold prices in the global bullion market have been going up ever since the IMF sale of gold to India. In April this year, IMF decided to sell 403.3 tons of gold as part of a plan to shore up its finances and lend at reduced rates to low- income countries. In the last few months, there have been reports that China and India could be the suitors to purchase the IMF gold. India has jumped into the fray by buying almost half of the IMF gold at about $1,045 an ounce.

Now let us think that India will not jump into buying the remaining IMF gold reserve. Who will buy next? Every bullion analyst of the name has been coming out with statements that China—that has been aggressively shoring up its yellow metal reserves—is in the fray to buy the remaining 203 tonnes of gold from IMF.

Dubai-based bullion analyst Mark Robison recenty told Commodity Online: “Everyone expected China to buy the IMF gold in the first phase. It is a surprise that India has jumped in the first place to purchase the IMF gold. India is the largest marketplace for gold in the world. I think by buying IMF gold, India has shown increased interest in diversifying out of US assets as the dollar loses value against other currencies. Now, is it China's turn to buy the IMF gold.”

China is the world’s biggest gold producer. In April, China increased reserves of gold by 76 percent to 1,054 tons since 2003.
Analysts like Robinson say China will buy the rest of the IMF gold. Do you agree? I do not agree. Simple because, why should China buy gold at this high price? Isn’t gold price sitting on a bubble that will burst soon? Aren’t speculators operating in the Comex gold futures market and driving up gold prices? Aren’t speculators making a killing of the gold they bought for nearly $800 per ounce around this time last year?

If you still insist that China will buy the rest of IMF gold, read what a top Chinese official has to say:

According to Wei Benhua, former deputy head of the Chinese state administration of foreign exchange (SAFE), in an interview by the Chinese business magazine Caijing: “At present we should not buy. Instead we should wait for the IMF to sell gold next time, when the price of gold drops to a relatively low level, say, about $800 per ounce.” Although China’s announced purchase in April this year wasn’t quite the shift into gold that gold bulls had been hoping for, the symbolism of China, India and Russia all adding to their gold reserves will inevitably be construed as implying that gold is not just an official asset of the past, but relevant today and possibly the future.

Here is another piece of information from Fortis Metals Monthly:

Interestingly enough, the IMF's managing director, Dominique Strauss-Kahn, was scheduled to visit Beijing on 16th-17th November .There’s little doubt that the IMF’s “spare” gold will be a topic under discussion. Strauss-Kahn’s trip may be no more than a warm-up preliminary meeting. He will have some persuading to do, if he wants the People’s Bank of China to take some IMF gold. The unofficial (but influential) view within Beijing’s establishment seems to be that buying at these kinds of prices makes little sense.

So the point of argument is that China is willing to buy IMF gold, but not at the high price that India paid. Gold price may be zooming to records; but China wants to wait and watch so that prices of the yellow metal crashes to realistic levels.

China, in fact, wants to buy gold cheap, around $800. Will IMF sell gold to China at $800? It will be a dream wish the part of China.

Coming months are going to be exciting for bullion traders, gold buyers and consumers. While gold jewellery buyers in nations like India and China are fretting and fuming over the unaffordable price of gold ornaments, bullion speculators are merrily jacking up the prices, thinking that gold at $1500 will give them life-time riches.

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