China weighs purchase of IMF gold

Reuters | Mon, 21 Sep 2009 09:44
[miningmx.com] -- CHINA is considering buying gold being offered for sale by the International Monetary Fund, Market News International said on Monday, citing two unnamed government sources, but the report could not immediately be confirmed.

"China will consider buying if the price is right and the return is relatively high," MNI quoted one of the government sources as saying.

Gold, which had dipped just below $1,000 an ounce, rebounded to $1,003.45 after the report. That would put the market value of the 403.3 tonnes on offer from the IMF at close to $13 billion.

"There was a small reaction to the news that China may discuss its gold plans at the G20, it recovered a little, but overall the market isn't overly concerned, not yet anyway," a Europe-based trader said.

China, the world's biggest producer and buyer of gold, revealed earlier this year that it had lifted its own stocks of gold to 1,054 tonnes from 400 tonnes when it last reported its holdings in 2003.

The IMF formally endorsed a plan on Friday to sell 403.3 tonnes of gold, one eighth of its holdings, to central banks or in the gold market.

Two Chinese central bank officials not directly involved in the issue told Reuters China should consider buying the gold being put up for sale by the IMF, but only at a big discount.

The officials, neither of whom had direct knowledge of the gold strategy, said they were expressing personal opinions.

"China only has about 1,000 tonnes of gold reserves and the investments in other assets are performing not very well," said one official, who declined to be named.

"I think we should build up more gold with foreign reserves, but when to buy is the key. It's a good idea if China can buy the gold from IMF at prices well below market level."

The official said he had no idea if the sale would be on the agenda for the G20 summit.

"I personally think China should buy the IMF gold. It will help China to diversify its reserve assets," the second official said. "For the purpose of reserve safety, it is also good to increase the proportion of gold by a suitable amount."

The estimated $13 billion cost of the is small beer for the Chinese exchequer, with foreign exchange reserves of more than $2 trillion. If it decided to buy the gold, China would be likely to seek a discount for the bulk purchase, since a market sale would put heavy pressure on the price.

The IMF has said it will try to sell the gold, one-eighth of its holdings, to central banks. If there are no takers, it could sell to the market, which saw world gold demand of 3,880 tonnes last year, according to World Gold Council figures.

The huge increase in reserves that China announced earlier this year had had little impact on the market because the gold was accumulated over a long period and mainly through direct purchases from Chinese producers.