Half of IMF’s gold offering was bought by India as an aegis against weak dollar

 Roughly half of the International Monetary Fund’s gold it agreed to sell as part of a plan to shore up its finances and lend at reduced rates to low-income countries was purchased by India for $6.7 billion as central banks across the globe are trying too diversify their holdings to protect their nations against falling dollar.

It is the first sale of IMF in nine years which constitutes about 8% of world annual mine production. India, the world’s biggest gold consumer, that previously held 358 tons, bought 200 tons from the IMF.

The news was a “surprise because everybody was talking about China being the buyer,” said James Moore, an analyst at TheBullionDesk.com.

“The fall in the U.S. dollar seems to be pushing all the central banks to strengthen their portfolio with gold,” said N.R. Bhanumurthy, professor at the National Institute of Public Finance and Policy in New Delhi. “Gold is a safe store of value compared to the U.S. dollar.” 

Earlier in September the IMF agreed to sell 403.3 metric tons and many Asian nations have already shown increased interest in diversifying out of U.S. assets as the dollar loses value against other currencies. 

The transaction involved daily sales from Oct. 19-30 at market prices and is in the process of being settled, reports the IMF.

As it follows from the IMF statement in July the proceeds from the transaction along with other resources would pay for discounted interest rates on loans to low-income countries. The IMF plans to grant as much as $17 billion in extra loans to poor nations through 2014.

According to the Indian central bank the purchase was done as part of Reserve Bank’s foreign exchange reserves management operations.

India’s foreign-exchange reserves advanced $684 million to $285.5 billion in the week ended Oct. 23, the central bank said Oct. 30. That included foreign-currency assets of $268.3 billion, gold reserves of $10.3 billion and the special drawing rights with the IMF. 

China, the world’s biggest gold producer, has increased reserves of the metal by 76 percent to 1,054 tons since 2003 and has the fifth-biggest holdings by country, Hu Xiaolian, head of the State Administration of Foreign Exchange, said in April. 

The lender has said it is ready to sell directly to central banks and later make transactions on the open market if necessary. The IMF official declined to say yesterday whether other central banks have expressed interest in purchases.