The Reserve Bank of India has purchased 200 tonnes of gold valued at Rs 31,490 crore ($6.7 billion) from the International Monetary Fund (IMF) under the latters's limited gold sales programme. "The purchase was done as part of the foreign exchange reserves management operations. It was an official sector off-market transaction, executed over a two-week period starting from October 19 at market-based prices," the RBI said in a press release on Tuesday.

Of the total foreign exchange reserves of $286 billion as on October 23, the RBI holds gold valued at $10 billion. With the latest purchase, the RBI's gold holding will touch 557.7 tonnes. India has come a long way since 1991, when foreign currency reserves shrank to almost nothing and default on external borrowings appeared imminent.

The then Prime Minister, P. V. Narasimha Rao, and the Finance Minister, Dr. Manmohan Singh's immediate response was to secure an emergency loan of $2.2 billion from the IMF. The Government had to offer the country's gold reserves as collateral. According to the World Gold Council's latest report, the RBI has become the 11th largest gold holder among various central banks, placing it ahead of the European Central Bank but behind Russia's. Mr. Dominique Strauss-Kahn, Managing Director, IMF, said in a statement, "The transaction is an important step toward achieving the objectives of the IMF's limited gold sales programme." - Hindu Business Line

Dominant Social Theme: Sell this barbaric relic!

Free-Market Analysis: Once upon a time, the sales (many never went through) of gold by central banks were an expression of contempt for the yellow metal. We recall that British Prime Minister Gordon Brown sold gold out of Britain at something like US$300 or US$400 an ounce and has never lived it down. But he pronounced himself satisfied at the time and still doesn't make any apologies, though he has been well excoriated on this as on other matters.

The IMF, too, is "satisfied" with its sale of gold to the Indian central bank. Since we believe gold is going much higher, we wonder if the IMF brain-trust will be satisfied in several years. In fact, it won't matter. They would have been satisfied to sell their gold for one dollar a ton, in our opinion. More satisfied in fact (as it would mean that the monetary elite had managed to get gold down to a "realistic" price). The IMF and the central banks that cluster around it can print all the money they want. If the IMF REALLY wants or needs funding, it can get it any one of a number of ways. So far as we are concerned, the point of the sale was to illustrate once again what money is and is not.

And what is money? It is what the IMF says it is. The IMF sold gold (which the IMF wants you to know is not money) in order to fund its indescribably important monetary activities (which are neither important nor effective, but that is besides the point.) The IMF is alone in this game, we note, this time. Used to be that it could talk other central banks into going along with such sales or at least announcing them. So, yes, the IMF has tried this hoary trick once more - showing the world that gold is merely a commodity to be disposed of at any convenient opportunity - but we think the message is getting lost in the world's growing lust for honest money.

We bet India (a very old society with much experience with fiat money collapses) is also "satisfied" with the IMF gold transaction. The Indians as a society still value this "barbarous relic" (gold). In fact, Indian women often wear a great deal of family wealth on their persons in the form of gold and silver jewelry. The idea, we think, is that one knows exactly where the family treasures are at all times - and they are easily accessible as well.

Conclusion: Gold has accrued in value from US$300 to US$1,100 this decade alone. In America, millions of families with their wealth in the stock market are ruined. Not so for Indians who wear their wealth on their arms and legs. Sometimes ancient cultures are wise, not merely backward.

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