In These New Times

A new paradigm for a post-imperial world

Gold Climbs to Record as India’s Central Bank Buys IMF Bullion

Posted by seumasach on November 4, 2009

Nov. 3 (Bloomberg) — Gold jumped to a record after India’s central bank bought 200 metric tons of the metal from the International Monetary Fund, heightening speculation that there may be more official purchases.

Gold futures for December delivery rose to a record $1,088.50 an ounce at about 2:22 p.m. in after-hours trading on the New York Mercantile Exchange’s Comex unit. Earlier, the most-active contract settled at $1,084.90, up $30.90, or 2.9 percent. It was the biggest gain since March 19.

“This will encourage other countries and other investors, especially Indians, who are big buyers anyway, to jump into the market,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois.

The Reserve Bank of India paid $6.7 billion for the bullion, which it bought from Oct. 19 to Oct. 30. It was “the biggest single central-bank purchase that we know about for at least 30 years in such a short period,” said Timothy Green, the author of “The Ages of Gold.” “The only comparable event was the U.S.’s steady purchases in the 1930s and 1940s.”

Prices also rose to an all-time high in gold traded in Indian rupees. Central banks, the biggest holders of gold, may diversify out of the dollar and buy bullion as ballooning U.S. debt and low interest rates weaken the currency.

China May Buy

“It is but a matter of time until China and the IMF announce much of the same,” said Dennis Gartman, an economist and the editor of the Gartman Letter in Suffolk, Virginia. China, now the sixth-largest holder of gold, has increased its gold reserves by 76 percent since 2003, to 1,054 tons, the official Xinhua News Agency reported in April.

In London, gold for immediate delivery also reached a record, touching $1,087.80 an ounce, and traded at $1,084.70, up $25.20, or 2.4 percent, at 7:51 p.m. local time.

Gold is up 23 percent this year while the U.S. Dollar Index, which measures the greenback’s performance against six major currencies, has dropped 6.1 percent. The previous record for bullion traded in New York was $1,072, set on Oct. 14.

“The fall in the U.S. dollar seems to be pushing all the central banks to strengthen their portfolios with gold,” said N.R. Bhanumurthy, a 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.”

India’s purchase buoyed gold as industrial metals slumped on concern that governments will end economic-stimulus measures, curbing demand for raw materials. Copper and lead both fell more than 1.2 percent today on the London Metal Exchange.

India Moves Up

India held 350 tons of gold at the end of 2008, making it the 12th-largest government owner, according to the GFMS Ltd. 2009 Gold Survey. The additional 200 tons propels the country past Russia into ninth place, according to GFMS figures. India is the world’s largest buyer of gold for jewelry and investment.

“You usually associate Indian consumers buying gold more than you do the central bank,” said Mario Innecco, an MF Global Ltd. broker in London. Gold averaged about $1,049 in the two weeks when the IMF gold sale occurred. Prices may rise to $1,125 by year-end, Innecco said.

The IMF’s executive board on Sept. 18 approved the sale of 403.3 tons of the metal, pledging to avoid disrupting the market. The lender said yesterday that India’s purchases were made at market prices. The IMF board sought to use the sales of about an eighth of the organization’s total stockpile to help shore up its finances.

Fed Meeting Begins

President Barack Obama has increased the nation’s marketable debt to an unprecedented $7 trillion as the government borrows to fund spending programs intended to revive economic growth. The Federal Reserve, which began a meeting on monetary policy today in Washington, has kept the benchmark U.S. interest rate between zero and 0.25 percent since December.

Gold rose today even as the dollar index rallied to a four- week high, a bullish sign to investors, said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. Gold holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, have risen 41 percent this year.

“This is safe-haven buying,” McGhee said. “Gold is decoupling from the dollar, which can make it even more bullish.”

The metal has outperformed stocks and bonds this year as it heads for the ninth straight annual gain. The Standard & Poor’s 500 Index climbed 15 percent in 2009 through yesterday while returns on the benchmark 10-year U.S. Treasury note declined 5.7 percent.

Price Outlook

Gold may average $1,125 next year, “with strong investment demand anchored by a negative real-interest-rate environment and probable central bank purchases,” analysts at Toronto-based Desjardins Securities Inc. said in a report.

Among other precious metals traded in New York, silver futures for December delivery rose 74 cents, or 4.5 percent, to $17.18 an ounce on the Comex. The most-active contract has surged 52 percent this year.

Platinum futures for January delivery climbed $18.10, or 1.4 percent, to $1,356.20 an ounce, erasing an earlier decline on the Nymex. December palladium gained $1.40, or 0.4 percent, to $327.75 an ounce.

To contact the reporters on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net; Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

 
%d bloggers like this: