Friday, November 6, 2009

Developing Countries Grabbing Up Gold

By Dan Weil
Thursday, November 5, 2009

Gold purchases by emerging market nations have combined with inflation fears to send the precious metal to record highs.

The latest emerging market acquisition news was India’s agreement to buy 200 million metric tons of gold from the International Monetary Fund (IMF) for $6.7 billion. That amounts to half of what the IMF has put up for sale.

Already in April, China revealed that it almost doubled its gold reserves — to 1,054 metric tons from 600 tons in 2003.

And traders tell the Financial Times that more purchases are coming from emerging market central banks as they seek safe haven investments after the financial crisis.

Source: Deutsche Bank, "Global Commodities Daily", Michael Lewis, 4 November 2009

The central banks are expected to buy gold from the IMF to diversify their reserves away from the dollar. Analysts see China, Russia and Middle East sovereign wealth funds as likely purchasers.

China’s gold reserves now account for only about 1.6 percent of its total foreign reserves, despite recent purchases, far below the global average of 10.5 percent.

India’s acquisition means that governments as a whole may be net buyers of gold this year for the first time since 1998. That would mostly come from IMF sales.

"Central banks in India and China will be happy to accumulate gold at these levels. I will not be surprised to see even some Southeast Asian banks buying gold," Aaron Smith, Asia head of the $1.65 billion Superfund, told Reuters.

For further reading:
"Gold comfort", The Hindu Business Line, November 6, 2009
"Sri Lanka central bank buying gold to diversify reserves", Reuters, November 5, 2009

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