Full circle: India buys 200 tons gold from IMF

Washington/New Delhi:  More than 18 years after New Delhi pawned 67 tons of gold to Western banks to tide over a balance of payments crisis, the Reserve Bank of India (RBI) has bought thrice that amount of gold from the International Monetary Fund (IMF) to diversify its assets.      The Washington DC-based IMF on Monday announced the sale of 200 metric tons of gold to the RBI, saying it represented almost half of the total sales volume of 403.3 metric tons that was approved by the Fund's executive board in September. "I strongly welcome this transaction with the RBI,'' IMF MD Dominique Strauss-Kahn said. "It is an important step towards achieving the objectives of the IMF's limited gold sales programme, which are to help put the Fund's finances on a sound long-term footing and enable us to step up muchneeded concessional lending to the poorest countries.''      For India, the purchase, apart from signalling that its economy has come a full circle, is a way of spreading its assets which are said to be currently over-weighed with foreign currency, mainly in the form of sovereign US Treasury bonds. In other words, it is a hedge against a falling dollar.      India is the world's largest private gold consumer, but the government's holding of gold as an asset is modest. Even so, the latest purchase puts it at No 10 on the list of top 10 gold-holders in the world.      Of India's current foreign exchange reserves of nearly $285 billion, foreigncurrency assets account for more than 90% ($268.3 billion), followed by gold ($10.3 billion), IMF's Special Drawing Rights ($5.2 billion) and a reserve position in the IMF of $1.59 billion.      While India's current gold holdings, accounting for just 3.7% of the assets, are said to be historically low, buying 200 tons in addition to the 358 tons it already holds is expected to bump up the gold reserves to more than 6%. Gold buy doesn't mean snubbing dollar: FM Washington/New Delhi:  The RBI's move to buy 200 metric tons of gold from the IMF has been prompted by the u n s t e a dy dollar, and countries like China, Russia and Brazil have already gone this route.      Commenting on the purchase, finance minister Pranab Mukherjee said, "It doesn't mean we don't prefer the dollar any more or like gold any better.''      Recalling the embarrassment of 1991, when India was forced to mortgage a part of its gold reserve, he said when the RBI recently asked whether it should invest in gold, he told the central bank it could do so to bolster the reserve.      An RBI statement said the purchase of gold was made as part of the bank's foreign exchange reserves management operations.      The IMF said the transaction, which is in the process of being settled, involved daily sales that were phased over a two-week period during October 19-30, 2009, with each daily sale conducted at a price set on the basis of market prices prevailing that day. Officials said the total sales proceeds were equivalent to $6.7 billion at an average gold price of $1,045 per ounce.      India's gold trauma occurred in the summer of 1991 when, faced with dwindling foreign exchange reserves and a possibility of a default on payments, the government hocked 47 tons of gold to the Bank of England and 20 tons of gold to the Union Bank of Switzerland to raise $ 600 million.      The move helped tide over the balance of payment crisis, and also kick-started the reforms process when the next Prime Minister, P V Narasimha Rao, appointed Manmohan Singh as the finance minister.