Back when gold began its first sharp ascent over $1000 per troy ounce in September, we at FT Alphaville wondered what, if anything, the move might have had to do with the IMF’s jumbo issue of $250bn worth of special drawing rights.
Now it seems India has provided the answer.
From the Wall Street Journal on Tuesday (our emphasis):
THE International Monetary Fund has sold 200 tonnes of gold to the Reserve Bank of India, nearly half the total approved by the IMF executive board in September. Proceeds from the off-market sale amounted to .7 billion ($7.4bn), or 4.2 billion of special drawing rights, or SDR, a combination of currencies, the IMF said. Payment is expected to be in major currencies that make up the SDR. IMF managing director Dominique Strauss-Kahn welcomed the transaction as an important step toward achieving the objectives of the gold sales program, namely “to help put the fund’s finances on a sound long-term footing and enable us to step up much-needed concessional lending to the poorest countries”.
Which appears to explain gold’s recent unusual and simultaneous moves against the four main currencies that comprise the SDR basket: the dollar, the yen, sterling and the euro.
We speculate India might indeed be the first country to use its SDRs for currencies to buy IMF gold, although that’s not to say other reserves haven’t had the same idea with gold generally.
Related links:
IMF sells 200 tonnes of gold to India central bank - FT
The SDR effect on the dollar, and gold - FT Alphaville
What’s driving paper gold? - FT Alphaville
SDR exchange lift-off - FT Alphaville
