Gold Fever Spreads to India

There were rumors China [Apr 25, 2009: China Begins Building Gold Reserves] was going to buy this stash of gold from the IMF; but it appears India "won". This will drop the International Monetary Fund stake, but still keep it at spot #3 in world's reserves, and send India screaming up the charts from 14th [Oct 13, 2009: Largest Gold Reserves by Country]. Gold fever is spreading across the globe as central banks go wild printing paper currency....

Via Reuters:

• The International Monetary Fund has sold 200 tonnes of gold to the Reserve Bank of India for $6.8 billion, quietly executing half of a long-planned bullion sale that has threatened to slow gold's ascent.
• The sale, which surprised traders who expected China to be the leading buyer, will relieve the gold market of some uncertainty over how and when the IMF would sell 403.3 tonnes of gold, about one-eighth of its total stock.
• It also fueled speculation that other governments -- including Beijing -- may be ready to diversify their reserves even at near-record gold prices, helping soak up IMF supply that the fund may otherwise be forced to sell on the open market.
• Although the IMF's plan to sell a share of its gold holdings in order to increase low-cost lending to poor countries had been flagged for a year before it was formally approved in September, both the speed of the deal and the buyer were a surprise.
• Although India is the world's biggest consumer of gold, primarily in the form of jewellery and investment among its billion-plus people, its central bank had given few indications of being a front-runner in the move to diversify into bullion.
• An IMF official said the sale was concluded at an average price of about $1,045 an ounce and that the transaction would be paid in hard currency and not in IMF Special Drawing Rights.
• "The fact that they've sold the gold to India would suggest there's going to be fewer official sales by the IMF on the market. So that might be a positive theme for the gold price," said David Moore, commodities strategist at Commonwealth Bank of Australia.
• The market's focus has now shifted to China, which has reportedly been in talks with the IMF about buying some of the fund's bullion as Beijing seeks to shift some of its more than $2 trillion in foreign exchange reserves away from the U.S. dollar. "Now people may think China will buy the other half," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

• “The fall in the U.S. dollar seems to be pushing all the central banks to strengthen their portfolio with gold,” said N.R. Bhanumurthy, professor at the National Institute of Public Finance and Policy in New Delhi. “Gold is a safe store of value compared to the U.S. dollar.”
• “It’s more or less certain that government of India expects the U.S. dollar to weaken,” said Suresh Hundia, president of the Bombay Bullion Association Ltd., in an interview today. The purchase is “not so much about India betting gold prices will increase but that the dollar will fall. They are looking to diversify their foreign exchange reserves.”

[Oct 29, 2009: Paul Tudor Jones 3rd Quarter Investor Letter - Another Gold Bug]

[Oct 8, 2009: Is Ben Bernanke Ruining Indian Weddings?]

[Sep 29, 2009: NYT - Out from India's Alleys, Gold Loans Gain Respect]

[Mar 17, 2009: John Paulson Joins David Einhorn as Gold Bug with Stake in AngloGold Ashanti (AU)]

Comments

[TradingHelp...:]

It's not just China and India buying physical gold, these guys are selling physical gold to retail investors who don't like replicated exposure via ETF's: 18 tonnes and counting:

www.bullionvault.com/#...

Nov 03 03:23 PM

[Roger Knights:]

Gold won't dip below $1000, because China or some other Asian central bank will buy on dips. The mode of the music has changed.

From here on out there will be increasingly high implicit support zones for gold. There won't be big money made on the short side. There's not much downside risk anymore.

Nov 03 05:01 PM

[DiggerUK:]

On Nov 03 05:01 PM Roger Knights wrote:
"The mode of the music has changed."

Hallelujah. Somebody has risen beyond the shell shock of the IMF gold finally being sold with some joined up thinking.

As for me, now I'm at the manipulator and conspiracy theorists funeral, can I just say that I couldn't stand them when they were alive.

Remember this day, a day that will go down in infamy for some , deep joy for others.

Nov 03 05:28 PM

[odin:]

What do central banks care about? Do they care whether they get an extra few points return on their FX reserves or whether there is employment, stability and sustainable growth?

Regardless of the recent strength in their currencies, the Asians have not forgotten the currency crisis. The stockpiling of $ they are pursuing and the undervaluation of the currency is not stupidity, they are plainly merchantilist policies designed to collect US$. This policy keeps the masses employed, stability in the financial systems and politicians in power.

While the market has looked at this news as unadulteratedly bullish for gold, it was always clear that IMF was not dumping 400 tonnes on gold on the open market. I'm not sure if anything at all has changed with this purchase.

The fact is that trade surpluses will trending down as US savings rate (post the clunker dip) start rising again. The priority of these banks will be to ensure that their respective currencies DONT rise too fast (and that the $ doesnt fall too fast).

Nov 03 06:03 PM

[Mad Hedge F...:]

zse ) News broke this morning that, out of the blue, the Reserve Bank of India bought 200 metric tonnes of gold from the IMF for a handy $6.8 billion. The news set the gold market on fire, boosting the December futures to an all time high of $1,088. It is the largest transaction in the barbaric relic since the Alaric’s Visigoths sacked Rome in 410 AD. It has been public knowledge for some time that the IMF was looking to unload 403 tonnes of the yellow metal in order to fund lending to poor countries. Many traders say this threatening overhang is why gold failed to definitively break out to the upside this year, despite six attempts. The expectation was that China would take this hoard as part of a broader diversification away from the dollar. Bringing India into the fray, which had no history of stockpiling gold, is a whole new kettle of fish. Not only does this raise the prospect of a bidding war with China for more gold reserves, other cash rich emerging market central banks are likely to join the fray as well, no doubt panicked by the ominously rising whirr of printing presses in the developed countries. My short term goal for gold was $1,200, but I now have to raise that to the $1,300 favored by some chartists in view of the new dynamics. If you want to see my long term target, take a look at the chart below, which has gold zeroing in on its inflation adjusted all time high of $2,358.

Nov 03 07:44 PM

[Graham and ...:]

"The mode of the music has changed."
The Indians, members of the world's second most populous country, have entered the picture as a COUNTRY, not as individuals. That's huge.

"There's not much downside risk anymore."
Until the next crash. When the Indians and Chinese finally run out of "buying power." But that is a decade or so away.

On Nov 03 05:01 PM Roger Knights wrote:

> Gold won't dip below $1000, because China or some other Asian central
> bank will buy on dips. The mode of the music has changed.
>
> From here on out there will be increasingly high implicit support
> zones for gold. There won't be big money made on the short side.
> There's not much downside risk anymore.

Nov 03 07:58 PM

[paulsjj:]

Let us know when India sells 200 Tonns of Gold...that indeed would be news. I doubt if the world will ever see that gold again.

Nov 03 09:18 PM

[mb2:]

Maybe it's diversification. Or, maybe it was a panic buy. Is it really wise to buy at the high?

Nov 04 09:28 AM

[blacksilver:]

Who's not to say China won't buy the other 200 tons of gold

Nov 04 11:41 AM

[Jeff Nielson:]

It still amazes me how short are peoples' memories. This spring, China's and India's governments loudly (and JOINTLY) urged the IMF to sell ALL of its THOUSANDS of tons of gold.

You hardly needed to be a "psychic" to predict that China and India would be at the front of the "line" to divvy-up the meager 400 tons of gold which the IMF is selling.

Nov 04 03:59 PM

[E Nuff Sed:]

Looks like the Indians have been listening to Marc Faber too much.

Nov 04 08:04 PM

[Down Time:]

Purchased with dollars.


On Nov 04 09:28 AM mb2 wrote:

> Maybe it's diversification. Or, maybe it was a panic buy. Is it really
> wise to buy at the high?

Nov 04 09:51 PM