Asian central banks tagged as potential buyers for 191.3 tonnes of IMF gold

The International Monetary Fund says it will soon begin a planned sale of a remaining 191.3 tonnes of gold to raise funds for lending operations

SINGAPORE/WASHINGTON (Reuters) - 

The International Monetary Fund said it would soon begin a planned sale of a remaining 191.3 tonnes of gold to raise new resources for lending, with traders saying it may seek buyers among Asian central banks.

But a drop of 1 percent in gold prices after Wednesday's news showed the market still cautious about future IMF sales -- nearly four months after India's purchase of 200 tonnes boosted the country's gold holdings to the 10th largest among central banks.

The open-market sales, which are part of a programme launched last year, "will be conducted in a phased manner over time" to avoid disruptions of the gold market. The fund left the door open for central banks to keep buying the gold directly from the IMF.

"To be honest, the market has expected this news somewhere along the line. They are probably approaching several central banks, but probably not the European ones at the moment," said Darren Heathcote, head of trading at Investec Australia.

Referring to worries about Greece's fiscal health that weigh on the euro, he said, "They are probably a little bit strapped for cash, aren't they?"

Gold XAU= slipped to $1,103 an ounce in Asia after volatile trade on Wednesday, when it hit an intraday high of $1,126.85 an ounce, its strongest since Jan. 20, before tumbling to below $1,110 after the IMF announcement [GOL/]

The price of gold has increased by 20 percent over the past two years. It struck a record of $1,126.10 early in December last year, partly driven by the prospects of more buying from central banks.

The IMF announced last year it would sell 403.3 tonnes of gold, about one-eighth of its total stock, to diversify its sources of income and increase low-cost lending to poor.

Until now, the gold has only been made available to central banks on a first-come-first-serve basis. So far, India -- the world's biggest consumer of gold -- Mauritius and Sri Lanka have purchased a total of 212 tonnes of gold from the IMF.

IMF TO CONTINUE SELL GOLD

IMF Finance Director Andrew Tweedie told IMF Survey publication the average price for the three sales was a little over $1,050 an ounce, generating about $7.2 billion in proceeds and a profit of about $4.5 billion over the book value of the gold in the IMF's accounts.

The IMF said central banks could continue to buy the gold, which would reduce the amount of gold available for sale on the open market.

"We are still open to off-market sales, so that window has not closed," Tweedie said, adding: "All that has happened now is that we are moving to also start on-market sales."

He said the sales would be based on market prices.

The sales have been conducted within a newly agreed Central Bank Gold Agreement, which limits sales to 400 tonnes annually and 2,000 tonnes in total over five years beginning Sept. 27, 2009.

Tweedie said a key element of the on-market sales was that they would be carefully phased over time. "This is the practice that other central banks have followed successfully, and we plan to adopt a similar approach," he added.

Analysts said the announcement took some wind out of the gold rally, but dismissed concerns the open-market sales would have a lasting impact.

"I think they want to test the market, whether the central banks want to buy at this level. They haven't sold the rest of reserves after the Indian buying," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

"I think towards $1,000, you may see better demand," he added.

Phillip Swagel, economics professor at McDonough School of Business at Georgetown University in Washington, said IMF gold stockpiles were not generating any income and the gold sales was one way of diversifying its assets.

"I don't think it signifies a change in the status of gold in the world economy. It is more to do with a change in the role of the IMF in the world economy," he added. (Additional reporting by Ellis Mnyandu; Editing by Clarence Fernandez)

© Thomson Reuters 2010 All rights reserved

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