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Gold Climbs to Record as India’s Central Bank Buys IMF Bullion
By Claudia Carpenter and Pham-Duy Nguyen

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 $1,087 an ounce on the New York Mercantile Exchange’s Comex unit and traded at $1,084.20 at 1:28 p.m., up $30.20, or 2.9 percent. A close at that price would be the biggest gain for a most-active contract 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.

“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.

Rising on Dollar

Before today, gold gained 19 percent this year as the U.S. Dollar Index, which measures the greenback’s performance against six major currencies, slid 6.2 percent. The previous record for bullion traded in New York was $1,072 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 remove economic-stimulus measures, crimping demand for raw materials. Copper and lead both fell as much as 2.8 percent on the London Metal Exchange.

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 largest buyer of gold for jewelry and investment.

Unusual Move

“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 board sought to use the sales of about an eighth of the organization’s total stockpile to help shore up its finances. 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.

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 has kept the benchmark U.S. interest rate between zero and 0.25 percent since December.

Bullish Sign

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 has risen 15 percent in 2009 through yesterday while returns on the benchmark 10-year U.S. Treasury note are down 5.7 percent.

Gold may average $1,125 in 2010, “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, silver futures for December delivery rose 72 cents, or 4.4 percent, to $17.16 an ounce on the Comex. Before today, the most-active contract climbed 46 percent this year.

Platinum futures for January delivery climbed $22.90, or 1.7 percent, to $1,361 an ounce, erasing an earlier decline on the Nymex. December palladium gained 90 cents, or 0.3 percent, to $327.25 an ounce.

To contact the reporters on this story: Claudia Carpenter in London at [e-mail]; Pham-Duy Nguyen in Seattle at [e-mail].
Last Updated: November 3, 2009 13:29 EST


LINK: http://www.bloomberg.com/apps/news?pid=20601087&sid=a1X3kSog4vSk&pos=2