IMF Gold Sale - China not a viable buyer: WGC

27 April 2010, 12:38 p.m. EDT
By Daniela Cambone
Of Kitco News

Montreal (Kitco News) -- People who believed China would be the buyer of the IMF’s 191.3 tonnes of gold hadn’t really thought it through, said George Milling-Stanley, head of government affairs for the World Gold Council.

The World Gold Council announced yesterday that the IMF sold 5.6 tonnes of gold in February on the open market, under the second phase of its gold sales program. The IMF began its planned sale of 403.3 tonnes of gold last year; it has a further 185.7 tonnes of gold to sell. Many speculated that after India’s central bank bought 200 tonnes of the IMF’s gold last November; China would be next-in-line.

“China has been buying local gold mine production and the production of local refineries - whether that is by-product gold or recycled gold - for a number of years,” said Stanley. “They have been gradually building gold reserves, not by cashing in dollar assets which might upset the dollar market but they have been quietly doing it by buying local gold production,” he said. However, he explained that the fact China didn’t buy any gold from the IMF doesn’t say anything about China’s views on gold.

This is something that a number of countries are doing as well, said Stanley. “Russia has been doing it for 20 years, as well as Venezuela and the Philippines – they have all been buying local production with local currency and either adding it to reserves or sometimes selling it to the market.”

“So China, I don’t think was never really a logical candidate,” said Stanley from the New York head office. “Once you exclude those central banks that have been building reserves in this manner then you start to look for the next logical candidate,” he said.

Stanley thinks this candidate has large and growing dollar balances, belief that the dollar is not yet set to soar and no local gold mining industry. “India then becomes a very logical candidate and they took half of what the IMF had available back in November, then Sri Lanka and Mauritius followed in example in a smaller way,” he said. The central bank of Sri Lanka purchased 10 tonnes and Mauritius’ central bank bought 2 tonnes.

As for the 5.6 tonnes sold in February, Stanley does not think it will cause any ripple. “The market would probably not have taken it in a calm manner had it sold the 191 tonnes on one day, but selling less than six tonnes in a month is not going to worry anyone… I think the market is a lot deeper and more liquid than most people realize,” he said.

In February the IMF announced that this second leg of sales to the gold market would be undertaken in a phased and transparent manner that would not disrupt the markets.

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