A Potential Game Changer

Official: China will not buy IMF gold

February 26, 2010

An official at the China Gold Association said China would not buy gold from the International Monetary Fund to avoid sparking market volatility, BusinessWeek reported, citing state media. The official's statement follows speculation that China would purchase gold from the IMF, which helped to push up gold prices US$10 to US$1,106 per ounce. The World Gold Council said earlier this week that China was not a "realistic candidate" for a purchase of bullion; the China Gold Association official said China would boost its reserves through investments in overseas mines. Some analysts have suggested that the People's Bank of China would buy gold bullion from the IMF to diversify its assets.

China To Purchase Half of IMF's Gold
Front page / Business / Finance
Source: Pravda.Ru

China has confirmed the intention to purchase 191.3 tons of gold from the International Monetary Fund at an open auction, Finmarket news agency said.

World central banks started to increase their gold reserves after prices on gold began to climb in 2001. The IMF sells gold within the scope of a program to diversify sources of income and achieve an increase in lending.

The IMF announced an intention to sell 403.3 tons of gold in accordance with the adequate decision made by the board of directors of the fund in September of 2009. India, Mauritius and Sri Lanka purchased about 212 tons of the amount at the end of 2009. India purchased most – 200 tons.

China’s interest in international trade is connected with the development of the nation’s economy, as well as with the growing consumer demand in the country.


We are getting conflicting reports about China's gold purchasing intentions from the IMF.
While we can not confirm Pravda's story, we suspect there may be some truth behind it.  The Chinese have been loading up on base metals and building materials for months. Government officials have been encouraging their citizens to buy precious metals.  There is a trend to tangible assets by the Chinese.  Therefore, it follows that China's Central Bank would want to acquire the IMF gold.
We also suspect that the Chinese do not want to cause any significant impact on the physical gold market, so any gold they are purchasing is likely to be kept away from the media spotlight.
What will tell us indirectly that China is buying physical gold is the behavior of the price of gold in US dollars in the coming months.  
We anticipate the US dollar will strengthen substantially in this deflationary environment.  Often this results in a pullback in gold prices.  If there is no pullback, or one of minor significance where gold maintains the $1000/ounce level, then we have good evidence of Chinese gold purchases beneath the radar of the media.