Gold $1180/oz India/IMF At It Again

 November 25, 2009 will be counted as another flying colors day for gold, the hottest commodity traded in global markets these days. Gold prices hit a historic record of $1180 per ounce, again on news reports that India is buying more gold from the International Monetary Fund (IMF).

Early this month, India’s central bank—the Reserve Bank of India (RBI)—bought 200 tonnes out of IMF’s saleable 403 tonnes of gold for a price of $1045 per ounce. Since then, gold prices have jumped more than $135 per ounce, may be the biggest rise for gold in the history of bullion trading.

Why is it that the mere news of India or for that any country in the world buying some gold from IMF driving up gold prices to unimaginable levels? Is a gold market hysteria on?

In April this year, IMF decided to sell 403.3 tons of gold as part of a plan to shore up its finances and lend at reduced rates to low- income countries. In the last few months, there have been reports that China and India could be the suitors to purchase the IMF gold. India then jumped into the fray by buying almost half of the IMF gold at about $1,045 an ounce.

On Wednesday, again news came out that India is mulling to buy more gold—possibly the remaining 203 tonnes of gold from IMF. Will India pay now $1180 per ounce of gold to IMF?

It bought 200 tonnes for $6.7 billion on November 3. The Reserve Bank of India (RBI) may well buy IMF’s remaining hoard of 201.3 tonnes on acceptable terms, which are now under negotiation.

A government official said that the additional purchase would depend on the “successful pitching by RBI”. “RBI is an independent body, and the government does not interfere in its affairs. It will get the gold if its bid is successful and at the price it has offered,” said the official.An IMF spokesperson said the gold sale process was still under way and “there is no fixed timetable for completing the sale”. Its spokesperson further said that “the fund does not wish to comment on discussions with individual members.

Merits Of Buying Gold

In an article in FC on November 4, Guild Investment Management CEO Monty Guild listed the merits of buying of gold. “It helps China and India more because their responsibility for financing IMF grows as they become powerful financially. It is a method to get IMF to self-finance in the short run and save China and India money,” he wrote. Guild said that since most of the gold bought would be out of reach for the retail market, “gold prices will not get hammered”.

Spot gold has jumped nearly 13 percent since the beginning of this month as investors flocked to the metal after India’s central bank announced it had bought 200 tonnes of bullion from the IMF, in the first such sale by the Fund since 2000.

Russia, Sri Lanka and Mauritius have followed suit.

Although India is the world’s biggest consumer of gold, primarily in the form of jewellery and investment among its billion-plus population, its central bank had given little sign of being a front-runner in the move to diversify into bullion. A second purchase would appear to lift India’s share of gold holdings to an estimated 8 percent or so, much less than most of the developed world but four times China’s share.

Adapted from: Commidity Online, Financial Chronicle, Economic Times

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