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India buys $6.7 billion worth of gold from the IMF

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hindu-bride-image-226x300India is buying 200 tons of gold from the International Monetary Fund for around $6.7 billion, almost half of the 403.3 tons that the IMF has agreed to sell to boosts its capital.

The Reserve Bank of India sale involved daily purchases from October 19-30 at market prices, said a statement from the IMF, an average price of $1,045 per ounce.

Bullish for gold

Gold guru Jim Sinclair immediately commented: ‘This is extremely bullish for Gold as it proves our point that central banks would take all and any gold that becomes available for sale’.

Observers will be surprised not to see China snapping up the IMF gold, and of course China might emerge as the buyer of the remaining hoard. China has boosted its gold reserves by 76 per cent to 1,054 tons worth around $32 billion since 2003, officials said in April.

The Indian gold purchase also represents a diversification away from the US dollar, although gold reserves of $10.3 billion are still small by comparison to $268 billion in foreign currency.

Recent encouragement from the Chinese government to its citizens to buy precious metals has been seen as putting a floor under gold prices, and the Indian purchase of IMF bullion can be noted as another substantial put option.

Traditional wealth

Gold has long been a traditional store of value in India where bridal jewelry still represents a reserve of the precious metal far above those held in the vaults of the Reserve Bank of India.

But in Dubai sales of jewelry are substantially down this year as Indians are also shrewd buyers and do not like to buy when the price of gold is high. Perhaps the Reserve Bank of India’s gold purchase will now convince the public that gold prices are not going to get any cheaper and bring them back to the souks.

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Written by Peter Cooper

November 3, 2009 at 1:58 pm

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