India seen as potential buyer for IMF gold

(Reuters)

24 February 2010

“India is no stranger to gold. They are gearing up for growth and want to recalibrate their reserves,” said Mark Pervan, senior commodities analyst at ANZ.

“They can’t lift their gold holdings from domestic output, unlike China. And they have shown an appetite to buy in the past.”

Reserve Bank of India officials declined to comment on their gold plans but some said the central bank considered gold to be a safe investment strategy.

“We are closely looking at the gold market. We buy at market prices,” an RBI official said.

The RBI adjusts its reserve portfolio on a regular basis, officials at the central bank said. None of the officials would speak on the record, given the sensitivity of the matter.

“The RBI doesn’t want to take a credit risk as there are concerns on the dollar and the euro now,” said a senior RBI official who is not directly involved in the bank’s gold purchases.

“So, despite the interest being very low, gold is a safe bet,” the official said, referring to the low returns the bank receives through custodians for lending out some its gold.

Another RBI official noted that since India’s foreign exchange reserves have not risen as the bank has not been intervening heavily in the forex market, the proportion of gold has held steady after its last purchase of the precious metal in October.