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Is India Clearing The Way For Gold ‘MoonShot’?

November 7, 2009
  • My answer is: most assuredly. You bet! Whatever quantity of gold the IMF or western banks sell, there are many Asian central banks who will buy them all. China alone will gobble up 10,000 tons without the blink of an eye. They have US$2.3T to spend on gold. Is gold far better than the USD? It is obvious: most definitely without any doubts! Are the Chinese thinking of buying gold? Adrian Ash writes:
  • “The question now is who buys the rest of the IMF gold?” asks Bart Melek at the $375 billion BMO Capital Markets in a note to clients. Following India’s surprise 200-tonne purchase announced on Tuesday, “We suspect it may be China, other Asian countries, Russia or even India again,” says Melek. “They hold relatively little gold relative to their very large foreign exchange reserves, and may want to diversify away from US Dollars.”

    “China’s gold is much cheaper” than IMF gold, however, notes Li Yang, a former member of the Chinese central bank’s monetary policy committee, and now a senior researcher at the Chinese Academy of Social Sciences, speaking to Reuters.The world No.1 producer since 2008, China is now also the world No.1 private gold consumer market.

    “It’s cheaper for us to buy gold from the Chinese market,” agreed an un-named People’s Bank official, “but it doesn’t help diversify our huge foreign exchange reserves.” “Even if China bought half the world’s annual gold supply, it would only cost a few tens of billions of dollars, which is tiny compared to China’s huge reserves. “Even if it’s sold at a market price, we should still buy,” counters Xia Bin, head of a key Beijing think tank advising the State Council cabinet, making plain that his was a personal view.

  • Even a small country like Sri Lanka has announced that they are buying gold.

    Sri Lanka buying gold to diversify reserves
    NEW DELHI, Nov 5 (Reuters) – Sri Lanka’s central bank has been buying gold for the past five or six months as it diversifies its reserves amid volatile markets, the bank’s governor said in an interview on Thursday. ‘We have been fairly strong accumulators of gold reserves over the past few months,’ Sri Lanka Central Bank Governor Ajith Nivard Cabraal told Reuters in a telephone interview from the southern Indian city of Chennai.

    ‘We haven’t stopped yet,’ he added, declining to quantify how much gold the central bank had bought or how much of the more than $4.8 billion of the country’s reserves were in gold. ‘Many countries are today diversifying. They are also looking at intrinsic value of their reserves, so gold would be a natural candidate for that kind of reserve accumulation,’ he said.

  • I have no doubts that many Asian central banks have already started buying gold quietly! MarketWatch reports:

    Does India like gold, or dislike Washington’s anti-gold dollar domination? Let Mary Anne and Pamela Aden tell the story. Their Aden Forecast first came to fame in the great gold bull market 30 years ago. The Adens are careful and adroit traders, and have a strong track record according to Hulbert Financial Digest, but they were speculating that gold might ultimately reach $5,800 when I last looked. ( See Oct. 8 column.)

    Last night they wrote in a hotline: “Gold is the big news this week. It hit another new record high today, quickly closing in on the $1,100 level. This followed yesterday’s $31 jump, which clearly propelled gold well above its previous high. The news that India bought 200 tons of the [International Monetary Fund’s] gold (half of what it’s planning to sell) at these high prices, and in one fell swoop, was incredibly bullish. It was viewed as a strong sign that gold is not too expensive and the Indians, who have a long gold history, obviously believe it’s going high.” The Adens conclude: “Our next target for gold at $1,200 is looking more realistic.”

    The Adens are chartists, and their rationalizations for what they see in their chart patterns are designedly an afterthought. Still, this rationalization is distinctly 1980-ish. There’s a newer group I call the “radical gold bugs,” gathered around Bill Murphy’s Le Metropole Cafe subscription Web site, who have a distinctly different take, based on a close study of market conditions. ( See March 31, 2008, column and Le Metropole Café Web site.)

    Murphy has long maintained, often in blistering terms, that what he calls a “moonshot” in gold’s price is being frustrated by an alliance of government agencies trying to sustain a financial bubble and their chosen instruments in the private sector. In other words, the radical gold bugs were Goldman Sachs conspiracy theorists long before everyone else was. ( See July 20 column.)

    India has long played an important role in the radical bugs’ thinking because they regard Indian consumer offtake as a critical factor in the gold price. But they view the Indian central bank’s recent gold purchase, not so much a play on the price, as a sign that the gold-hostile U.S. Treasury is losing its grip. Murphy wrote this week: “The fact that a central bank has in fact stepped in to take the gold is likely to greatly excite those who have been predicting such an event.”

    He continues: “They are probably right to be excited. Notwithstanding the Indian population’s interest in gold, the economic authorities there have traditionally been rather disdainful of the metal. For many years, it has been clear that Washington has been strongly opposed to central bank interest in gold, out of jealousy for the U.S. dollar. That India feels able to defy American preferences in this way is an ominous sign for the dollar hegemony.” In the radical bugs view, this means the main obstacle to the gold’s “moonshot” is breaking down.

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