India pushes gold to record high

Johannesburg - The gold price jumped to a record high of $1 095.65 on Wednesday after the price continued to capitalise on the news that India had bought 200 tonnes of gold from the International Monetary Fund.

The sale to India - the largest central-bank purchase in at least 30 years - was nearly half the 403.3 tonnes of gold that the IMF has targeted for sale over the coming years.

Earlier this week the IMF confirmed the sale to India's central bank, saying it had sold the precious metal over a two-week period last month for $6.7bn in a bid to strengthen its finances.

Washington-based IMF currently holds 3,217 tonnes of gold, making it the third-largest official holder of the precious metal after the US and Germany.

India is the world's biggest consumer of gold. It imports between 700 and 800 tonnes of the metal every year. That represents about 20% of global demand.

By 12:57 gold was quoted at $1 093.50 an ounce, up $8.70 from its previous $1 084.80.

"While gold is vulnerable to long liquidation, the Reserve Bank of India purchase news yesterday could give rise to further diversification into gold in the coming sessions as investors shy away from the dollar and fiat currencies and turn towards physical/physically backed assets," said James Moore of the BullionDesk.

"Gold looks poised to post fresh highs into the US$1,080 to $1 100 area," predicted Moore.

In his commentary titled Indian Summer on Tuesday, Kitco Metals senior analyst John Nadler said that even following the 200 tonne purchase, India hold just 6% of the world's gold reserves.

"As such, the purchase is seen as logical, and has its share of assertion of stature behind it. The other reason for the allocation was explained by comments from an ECB official -we quoted them in Monday's comment- simple asset diversification. Such spreading of risk is not necessarily a wholesale abandonment of the dollar, but a normal part of the process of foreign exchange reserve management," Nadler said.

He cautioned that while the gold bulls would interpret India's purchase as central bank confirmation that gold is the ultimate currency, the purchase is nothing more than a normal part of currency management practices.

In the meantime, local gold stocks appear to be cashing in despite the impact of the rand's strength. At $1 095.65 the gold price in South African rand per kilogram is R277 878.62.