IF YOU count bangles, necklaces, anklets and other pieces of jewellery, India is the largest repository of gold in the world, according to the World Gold Council. Many Indians see gold as an investment as well as an adornment. India’s post office sells 24-carat gold coins, as small as 0.5 grams, to savers wary of fiat currencies or mutual funds. The latest big investor in the metal is the Reserve Bank of India (RBI). On November 3rd the central bank said it had bought 200 tonnes of gold from the IMF, a purchase that would have cost about $6.7 billion. The news pushed the price past $1,090 an ounce for the first time.
The IMF’s gold holdings are less decorative than India’s, but also impressive: the third-biggest official stash in the world. Its sale to the RBI is part of a plan to offload 403.3 tonnes, or an eighth of its total. The proceeds will create an endowment to cover the fund’s operating expenses and help expand its lending. It is doing its best not to rock the market by selling first to central banks, in keeping with their agreement in August to sell no more than 2,000 tonnes over five years. But the gold market is now interested in how much central banks might buy, not how much they might sell.
The central banks of China, Mexico, the Philippines and Russia have all added to their gold reserves in the past year. The RBI is merely catching up. Its stockpile fell to just 3.5% of its total foreign-exchange reserves (of $281 billion) in September. This purchase will restore it to almost 6%. Every central bank with a large holding of American debt is worried about capital losses if the dollar continues to weaken. Gold offers reassurance. Anyone who wants to try “quantitative easing” in the gold market has to dig a mine.
Thanks and Regards,
Navneet Singh Chauhan.
It's all about Business, Economy and Administration.
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