The central bank of India,RBI has bought 200 metric tonnes of gold from IMF in $ 6.7 bn $.India is now the 10th largest holder of Gold Reserves.
The big question is the reason behind such a move.Is it a move to diversify its reserves (Yes!! the rising deficit of US and declining Dollar) or to have more say in IMF or ....?Lets uncover the reasons of this move by RBI and its effect on market of gold,BOP outlook of India,financial market...
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Some points to ponder over----
* IMF that has sold gold to India to 'borrow' money to loan to poor nations!!!IMF's executive board approved gold sales strictly limited to 403.3 metric tonnes, representing one eighth of its total holdings.India bought 200 metric tonnes...Who bought the rest(200.3 tonnes)....Is it China again???my gosh!!!!China could be one, given the economic strength even in the face of the global recession that ravaged most economies.
* India could be buying the yellow metal to push for a larger voting share in the IMF.
* The transaction would be paid in hard currency and not in IMF Special Drawing Rights.
Is IMF also facing cash crunch???Is the world economies diversifying its asset base???
Lets face the world is scared whether US would recover from the recession, whether it woulld be a W shaped or an L shaped recovery and when recovery would be coming. The recent upmove of 3.5 % in the US Gdp is purely backed by G, the consumer confidence has still not improved, unemployeemnt is incrsing 10.2% currently expected to increase further, increasing forclosures on homes currently up by 300,000 more foreclosures. China the single largest buyer of US treasury is reducing its exposure. So legts face the fact the USD is declinig and decling fast too. But some spectics may argue that this signifies the end of the USD era but this I feel is a distant dream. I feel the position of USD as a store of value would continue atleast for the next 2 decades backed purely by the Federal Reserve and its Gold Stock(No one exactly knows the amount of gold in its reserves) together with control over IRAQ's oil. The USD is here to stay. But the cycles of boom and bust of the dollar can affect the EME's and that too very fast. So to protect its forex reserves from the decling dollar and also to gain importance in the world forum and to signify the growing power of ChiNdia this action was taken.
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