IMF Sells Gold to India, First Sale in Nine Years (Update2)

By Sandrine Rastello and Kim Kyoungwha
Nov. 3 (Bloomberg) -- The International Monetary Fund sold 200 metric tons of gold to the Reserve Bank of India for about $6.7 billion, its first such sale in nine years.
The transaction, equivalent to 8 percent of global annual mine production, involved daily sales from Oct. 19-30 at market prices and is in the process of being settled, the IMF said in a statement yesterday. The average price to India, the biggest consumer, was about $1,045 an ounce, an IMF official said on a conference call. Gold for immediate delivery gained 0.2 percent.
"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."
The IMF sale accounts for almost half the 403.3 tons that the Washington-based lender in September agreed to sell as part of a plan to shore up its finances and lend at reduced rates to low-income countries. Asian nations, which have amassed stockpiles of foreign currency reserves since the 1998 financial crisis, have shown increased interest in diversifying out of U.S.
assets as the dollar loses value against other currencies.
Gold for immediate delivery gained to $1,061.60 an ounce at
3:42 p.m. in Singapore and was about $9 below its record $1,070.80 an ounce reached Oct. 14.

Concession Lending

"The most important thing is that people want gold even at these prices," said Ghee Peh, head of mining research, with UBS AG in Hong Kong. "There’s good support for prices for now"
from the IMF’s disposal of bullion, he said.
Proceeds from the sales and other IMF resources as well as individual contributors would help pay for discounted interest rates on loans to low-income countries, the IMF said in July. It plans to grant as much as $17 billion in extra loans to poor nations through 2014. The 403.3 tons the IMF agreed to sell amount to one-eighth of its stockpile.
"This transaction is an important step toward achieving the objectives of the IMF’s limited gold sales program, which are to help put the fund’s finances on a sound long-term footing and enable us to step up much-needed concession lending to the poorest countries," IMF Managing Director Dominique Strauss- Kahn said in an e-mailed statement.

Reserve Management

The gold purchase was done as part of Reserve Bank’s foreign exchange reserves management operations, the central bank said in a statement on its Web site today.
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.
"There seems to be consensus among the central banks that it’s better to cut down on currency holdings and diversify into assets like gold, which has upside potential," Krishna Reddy, a precious metal analyst at Way2Wealth Commodities Pvt. said in Mumbai. "The Reserve Bank of India gold purchase is a clear reflection of this belief."
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 nation may purchase some of the 403.3 tons of gold being offered by the IMF, Market News International reported in September, citing two unidentified government officials.

More Sales

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.
The IMF, which helped shore up economies from Pakistan to Iceland over the past year, has sold gold on several occasions.
The last transaction was authorized in December 1999 and took place off-market between then and April 2000.
"Gold production has been declining for the past seven years, while demand, particularly the investment demand has been growing steadily," Way2Wealth’s Reddy said. "Central banks and even ordinary investors want to own more gold."

Last month China (?) required the physical settlement of 20 tons of Gold
This month, India purchases 200 tons from IMF...
I added on my long at around 1040, my argument for this is one I've already had: when the USD drops, the gold goes up, when the stocks go down, the gold jumps... What is being reassessed now is the safe haven role of the USD while the one of gold seems to be anchored.

Looks like with my long position i sit on a gold mine

Sauros wrote:

Last month China (?) required the physical settlement of 20 tons of Gold
This month, India purchases 200 tons from IMF...
I added on my long at around 1040, my argument for this is one I've already had: when the USD drops, the gold goes up, when the stocks go down, the gold jumps... What is being reassessed now is the safe haven role of the USD while the one of gold seems to be anchored.

Looks like with my long position i sit on a gold mine

Hi Sauros, just my opinion, gold is quite expensive for the moment,
2 news related
http://online.wsj.com/article/SB125724100100724923.html?mod=googlenews_wsj
http://www.ft.com/cms/s/0/2b981324-c807-11de-8ba8-00144feab49a.html

Now, India will have less demand from the market, IMF has another 200 tonnes to sell,
remember what they say about oil during the crisis, "will reach 160 usd or more", then back to 30 usd. I'm not saying it will go down all of a sudden, unless big players sell some of their stocks, but actual demand is going down for sure, what is next use of gold "is it hedge against inflation?, I doubt! it already gained almost 80% compared to the pre crisis period. On the moment fed increase rates USD will increase.
My opinion is for mid/long term, actually india and china support high gold prices, but no one can afford to keep prices high unless there is actual demad, just ready to pull trigger!

almbayrak66 wrote:

Sauros wrote:

Last month China (?) required the physical settlement of 20 tons of Gold
This month, India purchases 200 tons from IMF...
I added on my long at around 1040, my argument for this is one I've already had: when the USD drops, the gold goes up, when the stocks go down, the gold jumps... What is being reassessed now is the safe haven role of the USD while the one of gold seems to be anchored.

Looks like with my long position i sit on a gold mine

Hi Sauros, just my opinion, gold is quite expensive for the moment,
2 news related
http://online.wsj.com/article/SB125724100100724923.html?mod=googlenews_wsj
http://www.ft.com/cms/s/0/2b981324-c807-11de-8ba8-00144feab49a.html

Now, India will have less demand from the market, IMF has another 200 tonnes to sell,
remember what they say about oil during the crisis, "will reach 160 usd or more", then back to 30 usd. I'm not saying it will go down all of a sudden, unless big players sell some of their stocks, but actual demand is going down for sure, what is next use of gold "is it hedge against inflation?, I doubt! it already gained almost 80% compared to the pre crisis period. On the moment fed increase rates USD will increase.
My opinion is for mid/long term, actually india and china support high gold prices, but no one can afford to keep prices high unless there is actual demad, just ready to pull trigger!

nice find almbayrak66, but to be honest i believe asian demand on gold is beyond rational and with lingering inflation and ECB talks on raising rates its possible gold has more room to the upside sentiment wise.

-snapman

almbayrak66 wrote:

Hi Sauros, just my opinion, gold is quite expensive for the moment,
2 news related
http://online.wsj.com/article/SB125724100100724923.html?mod=googlenews_wsj
http://www.ft.com/cms/s/0/2b981324-c807-11de-8ba8-00144feab49a.html

Now, India will have less demand from the market, IMF has another 200 tonnes to sell,
remember what they say about oil during the crisis, "will reach 160 usd or more", then back to 30 usd. I'm not saying it will go down all of a sudden, unless big players sell some of their stocks, but actual demand is going down for sure, what is next use of gold "is it hedge against inflation?, I doubt! it already gained almost 80% compared to the pre crisis period. On the moment fed increase rates USD will increase.
My opinion is for mid/long term, actually india and china support high gold prices, but no one can afford to keep prices high unless there is actual demad, just ready to pull trigger!

Hi almbayrak66, it's always nice to hear opinions that go against your position as we all tend to hear what we want to hear... Here, you may be right, gold could be too expensive, but to me it might happen in the shorter term while my gold position is intended for the (much) longer term.

My gold position is maybe one of my best execution of the "let the profit run" rule as I initiated it roughly one year ago and holding it since. I was lucky enough to buy it precisely the day it hit its 2-year or so bottom under 700$ (688$). Now I must confess that all the way from 700 to 1090 I added to the position, took some profit and even some losses, but my initial position is still here and I'm trying to play the big swing. It was the best deal of 2008 and probably one of the best of 2009 too

And it is still a position I'm comfortable with!
I'm writing on a regular basis some posts on the blog about gold, basically to me 3 points justify my long position in the long run

- Gold is risk averse
- Gold is short USD
- Gold is long inflation

Regarding the first two points, Gold and USD are both safe havens and tend to go up when everything is going badly and the equity markets go down but as I wrote before, my feeling is the risk aversion role of gold prevails on its short USD property as a commodity : once again, it means I feel that when the stocks go up, the USD go down and that pushes the gold up and when the stocks go down, the USD go up but investors run to safe havens and gold goes up as well (the experiences recently tend to show that when the USD go down the gold goes up but when the stocks go down, gold jumps up, well it's the way I trade it)

Just a word about the long inflation stuff... there's no reason why gold is a hedge against inflation (or a safe haven) but this kind of stuff is self fulfilling: that's because people believe that gold is a hedge against inflation that it IS a hedge against inflation.

Back now to the role of China and India on gold : as mentioned Snapman, the demand for gold in those countries seems beyond rationality, the bid for gold is just deeply in the culture. I discussed recently with an indian colleague of mine : first you have seasonal demand for gold (weddings and celebrations) second as soon as the gold price dips, there are a lot of people there to buy it, even at price higher than the market. I guess this cultural aspect is similar in China. My other point concerns the short dollar aspect, notably in China. China has a huge reserve of dollars they keep in order to maintain the yuan weak and to be competitive. As we discussed in another thread, almbayrak66, I believe that the weakness of the USD is strongly supported by the US government and as you mentioned could a "solution to the crisis" : it favours US exports and support its growth (see the recent economic figures) and decrease their debt. Of course, what is bad for the USD is bad for its owner : China notably. My guess is China will get rid of its USD and exchange it for commodities. Among these commodities you guessed it I think there will be massively gold...
This post where I discuss how china can swap dollar against gold may be of interest for you.

Now that was the fundamental reasons and honestly I buy to a large extent the arguments of the guys who see gold at 2500$ in a close future and I don't even think about a new Bretton Woods as some guys support, in which case it will jump to 10,000 (let me dream guys)

There are some technical arguments as well that I will discuss later, particularly breaks and strength, but it's getting late here.

Hi Sauros, I wrote a long reply but my internet connection gone, god sake I can not write again all. In brief I agree with snapman, gold may have more room to go. I just wanted to share my point of view, I felt like I had to, after sharing many info in this forum. As fundamental I always check sings in the market, mostly in the papers. IMF selling was a strong sign for me. Years ago BoE sold some gold to the market directly and decreased prices less than 500usd/ounce.
I just wanted to share this info with you.
But to be honest gold can have very big room to go, I dont know.


good luck with your tradings
please wish me luck to, I will need it next week with all my short GBP positions,
GBP eats me alive

almbayrak66 wrote:

Hi Sauros, I wrote a long reply but my internet connection gone, god sake I can not write again all. In brief I agree with snapman, gold may have more room to go. I just wanted to share my point of view, I felt like I had to, after sharing many info in this forum. As fundamental I always check sings in the market, mostly in the papers. IMF selling was a strong sign for me. Years ago BoE sold some gold to the market directly and decreased prices less than 500usd/ounce.
I just wanted to share this info with you.
But to be honest gold can have very big room to go, I dont know.

good luck with your tradings
please wish me luck to, I will need it next week with all my short GBP positions,
GBP eats me alive

First thanks you guys for sharing your views here. The
essence of the market and price is that, at a given moment, there are as many
buyers as sellers and it's interesting to have the 2 points of view
before taking a decision. And of course before a trade, the more
opinions and information you have, the better, the only thing to keep
in mind is that ultimately the responsibility belongs to you, the one
who risks his own money and takes the decision who's the only one to
blame in case of a loss.

Back to the IMF sale, it was not really a surprise.If I remember
well the sale was announced at the G20 in london in april and the size
of 200 metric tons was given in August. What surprised the market is
that India got the deal and not China as expected. It highlighted the
interest for the precious metal of another geopolitical major player
we tend to forget (lately everything was about china). The recent metal
report in the research crypt shows that as of today, all the central
reserves outside of the US and Europe have a low gold reserve ratio.
Now, Gold just changes hands (versus USD). One can guess how a battle
to own gold opposing 2 giants like india and china impact the market...

Now, to be frank, 2 points scare me on my long term position:
- Firstly, more and more analysts forecast that gold will skyrocket. I
hear 2500 in early 2010 (Jim Sinclair notably) and even 5000 in the
long run. As said Jim Rogers recently (I've read this in a post here on
the forum): when everybody is on the same side of the boat, you know
where to go. That's the contrarian side of my trading : when everybody
forecasts an event, it is unlikely it occurs because it is already
discounted in the current price . Maybe the recent jump of gold from
1030 to 1100 reflects the general anticipation of the gold increase and
maybe there's no room anymore for a further upside.
- Secondly, as I discussed recently in a post on short positions, in
order to hold gold in the long run, one need to be doubly right. Being
long gold doesn't give me a coupon or a dividend : I'm not paid for the
risk I'm taking and I even pay for it, doesn't make sense in the long
run... The other thing is as I'm building a position, I can't afford
not to consider some "armageddon" scenarios forecasting gold in the sky
and USD near zero and a collapse of the derivatives contracts. In such
a case I could be in the not so nice situation where I'll be very rich
with my long position (that's nice) but only on paper (that's not nice)
as the profits I would then have made on gold won't settle, That's why
the best solution is then : avoid derivatives and ETF and buy physical
gold, bars and coins. Once again, physical gold doesn't pay dividend
and is costly to store (or to hide, I won't speak about the efforts
you'll make to dig a hole in your garden).

Finally good luck almbayrak66, GBP is currently pretty hard to trade, I
made good profits being long EURGBP from 0.855 to 0.94 but got recently
burnt and gave back some of them... I'll post something on it
shortly.

Nov. 8 (Bloomberg) -- The International Monetary Fund said traders are probably using the dollar to fund “carry trades” around the world and the currency may still be overvalued even after its slide this year.
“There are indications that the U.S. dollar is now serving as the funding currency for carry trades,” the IMF said in a report published yesterday. “These trades may be contributing to upward pressure on the euro and some emerging-economy currencies.” While the dollar “has moved closer to medium-run equilibrium,” it is still “on the strong side.”
With investors able to borrow at near-zero interest rates in the U.S., some economists are concerned that markets may become distorted as traders plow those funds into riskier assets. Nouriel Roubini, the economist who forecast the financial crisis in 2006, said Nov. 4 that investors are milking the “mother of all carry trades.”
“U.S. interest rates look to remain near zero through the first half of 2010 at the very least, which provides traders plenty of time to continue with carry trades,” said Boris Schlossberg, director of currency research at the online currency trader GFT Forex in New York. “Labor-market conditions are still very challenging in the U.S., and the rest of the world is improving faster. The dollar remains the weakest link.”

http://www.bloomberg.com/apps/news?p...DqoEZ.mU&pos=5

almbayrak66 wrote:

Nov. 8 (Bloomberg) -- The International Monetary Fund said traders are probably using the dollar to fund “carry trades” around the world and the currency may still be overvalued even after its slide this year.
“There are indications that the U.S. dollar is now serving as the funding currency for carry trades,” the IMF said in a report published yesterday. “These trades may be contributing to upward pressure on the euro and some emerging-economy currencies.” While the dollar “has moved closer to medium-run equilibrium,” it is still “on the strong side.”
With investors able to borrow at near-zero interest rates in the U.S., some economists are concerned that markets may become distorted as traders plow those funds into riskier assets. Nouriel Roubini, the economist who forecast the financial crisis in 2006, said Nov. 4 that investors are milking the “mother of all carry trades.”
“U.S. interest rates look to remain near zero through the first half of 2010 at the very least, which provides traders plenty of time to continue with carry trades,” said Boris Schlossberg, director of currency research at the online currency trader GFT Forex in New York. “Labor-market conditions are still very challenging in the U.S., and the rest of the world is improving faster. The dollar remains the weakest link.”

http://www.bloomberg.com/apps/news?p...DqoEZ.mU&pos=5

I still don't think the dollar is being used as carry in the currency realm otherwise the the dollar would be even weaker. I see it being plowed in other risker assets but not currencies yet. I would love to see a break down of fund flows for october. I got to start reading my fund news again! unfortunately been so busy lately!!!

btw Almbayrak66 are you trading the dollar or any other major pair right now? Im curious what is your take of the currency market right now for the short term (until the end of Nov into 4th quarter).

Actually I’m quite convinced usd is a favored carry trade funding money better than yen which is getting stronger compred to dollar getting weaker every day seems as everyone wants it, probably not the usd people who may suffer from increasing prices and inflation. Just a good example aud. Aud is increasins in very fast pace, aud/usd was 0,64 in feb now it is 0,93 almost 50% increase against usd, 3000 pip. OK let say usd economy have hard times, let check eur/aud it was 2.11 in dec 08, now 1,61, 5000 pip. What makes aud so valuable like saudi riyal, againts two major economy, new gold mines, petroleum……, what fundemantal can explain this other than interest rates (aud 3.5% interesest rate, nzd 2.5 I think). My broker gives as interest 187 usd per month for 1 lot long aud/usd, no fight for pips. For 1 lot of short you pay 275usd/month who wants to sell aud/usd raise your hands!



Probably some big brokers who are specialized in carry trades may offer better rates. In fact these carry traders, big big guys create a very strong momentum, it is also possible win lots of lots of pips, (3000 / 5000) other than interest rates. I dont understand why people are confued with bonus payment of bank people, these people are really winning money, tons of.



Aud people is also happy with strong money, can travel abroad more richer, can buy goods, imported goods more cheaper. Probably usd people have some mixed, contrary feelings.



the only point is more import less export

Aud trade balance below, left column is actual. On dec it was +3B positive.

Oct 6, 2009	-1.52B	-0.89B	-1.78B
Sep 3, 2009	-1.56B	-0.80B	-0.54B
Aug 5, 2009	-0.44B	-0.79B	-0.74B
Jul 2, 2009	-0.56B	-0.10B	-0.28B
Jun 4, 2009	-0.09B	1.60B	2.30B
May 6, 2009	2.50B	1.73B	1.75B
Apr 2, 2009	2.11B	0.70B	0.93B
Mar 5, 2009	0.97B	1.10B	0.42B
Feb 3, 2009	0.59B	1.05B	0.98B
Jan 8, 2009	1.45B	2.05B	2.96B
Dec 4, 2008	2.95B	1.45B	1.25B
Nov 5, 2008	1.46B	0.50B	1.24B
Oct 2, 2008	1.36B	0.26B	-0.70B
Sep 4, 2008	-0.72B	0.11B	0.35B
Jul 31, 2008	0.41B	0.03B	-0.25B

Anyway fed can not touch interest rates for some extended period, so my opinion usd will be a carry trade money for some time.



Regarding my trades I buy/sell eur/usd, gbp/usd in red, bloody ocean ( hope you red this book) mostly to satisfy my masochist feelings ( I really don’t know why I trade these pairs instaed of always long on aud/usd). But my favorites are gbp/jpy, eur/jpy because they bring /or takes twice pips since usd/jpy behaves like jpy/usd many times, I guess it is because weak jpy is vital for japan.



I expect all of these pairs increase, till the end of this year, I guess including IMF, big guys almost everyone wants weak, weaker dollar.



I’m minor carry trader with short on usd/try and eur/try. The second one brings 60 usd/month for 1 mini lot and also some pips.

Hey Snapman do you have some advice for currencies

almbayrak66 wrote:

Actually I’m quite convinced usd is a favored carry trade funding money better than yen which is getting stronger compred to dollar getting weaker every day seems as everyone wants it, probably not the usd people who may suffer from increasing prices and inflation. Just a good example aud. Aud is increasins in very fast pace, aud/usd was 0,64 in feb now it is 0,93 almost 50% increase against usd, 3000 pip. OK let say usd economy have hard times, let check eur/aud it was 2.11 in dec 08, now 1,61, 5000 pip. What makes aud so valuable like saudi riyal, againts two major economy, new gold mines, petroleum……, what fundemantal can explain this other than interest rates (aud 3.5% interesest rate, nzd 2.5 I think). My broker gives as interest 187 usd per month for 1 lot long aud/usd, no fight for pips. For 1 lot of short you pay 275usd/month who wants to sell aud/usd raise your hands!



Probably some big brokers who are specialized in carry trades may offer better rates. In fact these carry traders, big big guys create a very strong momentum, it is also possible win lots of lots of pips, (3000 / 5000) other than interest rates. I dont understand why people are confued with bonus payment of bank people, these people are really winning money, tons of.



Aud people is also happy with strong money, can travel abroad more richer, can buy goods, imported goods more cheaper. Probably usd people have some mixed, contrary feelings.



the only point is more import less export

Aud trade balance below, left column is actual. On dec it was +3B positive.

Oct 6, 2009	-1.52B	-0.89B	-1.78B
Sep 3, 2009	-1.56B	-0.80B	-0.54B
Aug 5, 2009	-0.44B	-0.79B	-0.74B
Jul 2, 2009	-0.56B	-0.10B	-0.28B
Jun 4, 2009	-0.09B	1.60B	2.30B
May 6, 2009	2.50B	1.73B	1.75B
Apr 2, 2009	2.11B	0.70B	0.93B
Mar 5, 2009	0.97B	1.10B	0.42B
Feb 3, 2009	0.59B	1.05B	0.98B
Jan 8, 2009	1.45B	2.05B	2.96B
Dec 4, 2008	2.95B	1.45B	1.25B
Nov 5, 2008	1.46B	0.50B	1.24B
Oct 2, 2008	1.36B	0.26B	-0.70B
Sep 4, 2008	-0.72B	0.11B	0.35B
Jul 31, 2008	0.41B	0.03B	-0.25B

Anyway fed can not touch interest rates for some extended period, so my opinion usd will be a carry trade money for some time.



Regarding my trades I buy/sell eur/usd, gbp/usd in red, bloody ocean ( hope you red this book) mostly to satisfy my masochist feelings ( I really don’t know why I trade these pairs instaed of always long on aud/usd). But my favorites are gbp/jpy, eur/jpy because they bring /or takes twice pips since usd/jpy behaves like jpy/usd many times, I guess it is because weak jpy is vital for japan.



I expect all of these pairs increase, till the end of this year, I guess including IMF, big guys almost everyone wants weak, weaker dollar.



I’m minor carry trader with short on usd/try and eur/try. The second one brings 60 usd/month for 1 mini lot and also some pips.

Hey Snapman do you have some advice for currencies

Wow, that was a very thorough currency post. As of now I can't give any detailed responses as my Fund has me very very very busy with compliance and adminstartive duties.


I will tell you generally that i trade Eur/USD GBP/USd and AUD/USd and CAD/USD and started exploring the other cross pairs you mentioned.

you definitely bring up some very valid fundamental points that speak for future dollar weakness. Some advice I can give is that you seem to be very focused in the currency arena. Perhaps it may help to look at other markets such as equity, bond, and commodities markets to make a more nuisanced trading system.

For example, fundamentally it seems that the dollar should stay weaker, but there is a high risk of a huge correction to the upside if markets expectations are not met within the US markets. If US equtiies tank for surely this will be lead with dollar strength.

As of late the S&P500 has been testing 1100 resistence and the dow is at the all time 10,000+ pyschological highs.


Looking at other markets should give yo indicators of whether you should reduce exposrue in certain pairs or if you shuld be hedged due to building risks in other markets that can affect your core currency pairs...

Perhaps you know all this already, but I hope this helps for now, ill try and give a better reponse when i find more time...

Thanks for the update! I always appreciate insight from fellow traders.

-snapman

Hey guys,
I summarized the points on gold I mentioned in this thread on the blog : http://blog.thelordoftrading.com/2009/11/goldum-boy.html
By the way, as promised I just wrote a post about my late trading of the GBP where I detail as well some points of my (swing) trading techniques : http://blog.thelordoftrading.com/2009/11/eurgbp-swinging-in-rain.html

1190 and I'm still in
OK I will maybe trail my stop and tighten it but is the USD slumps, there could be still upside

Sauros wrote:

1190 and I'm still in
OK I will maybe trail my stop and tighten it but is the USD slumps, there could be still upside

Ouch, the risk came back as there's stress with Dubai and the USD jumped, gold drop to 1137 from 1195, just 1$ above the stop of the gold trade I initiated at 1040, and bounced back to 1075. While I still think that there's upside, I decided not to play with my luck anymore and take the profits on that position @ 1170, still a good ride.

Of course I'm still long gold with an average price of 688