Trend: Central banks with massive foreign reserves are spending dollars on gold, creating more demand for the precious metal.
David Parkinson at Seeking Alpha describes the reason that the price of gold spiked up on November 3, 2009. Excerpts below.
Link: Why the IMF's Indian Gold Sale Matters -- Seeking Alpha.
Bullion surged more than $30 (U.S.) to $1,085 an ounce in New York Tuesday, trouncing is record high set just three weeks ago, after the IMF disclosed that it had sold 200 tons of gold to the Reserve Bank of India - for the low, low price of just $6.7 billion. The sales took place over the past two weeks, and represent almost half of the IMF's previously announced 403.3-ton gold sales program.
The prospect of the IMF and other gold-rich central banks selling off gold reserves to the open market was one of the few factors out there weighing gold prices down. Ever since the IMF decided to start selling gold, market watchers had been bracing for a possible flood of gold supply that would take the wind out of gold's sails.
The fact that the IMF sold fully half of its gold program to a single buyer, off-market, in one fell swoop just six weeks after approving the sales program, caught the gold market by surprise.
Now, suddenly, the market is considering the very real prospect that the rest of the IMF sales program could end up with central banks, and little, if any, will ever hit the streets.
China, in particular, is rumoured to be eager to snap up the rest of IMF's gold, as it looks to diversify its own massive foreign reserves - an uncomfortably large amount of which is tied to the sinking U.S. dollar.
This would keep a whole lot of gold out of the market, and that's what got traders excited Tuesday.
...the fact is that the RBI looked at $1,000-an-ounce gold and was still willing to buy an awful lot of gold at that elevated price. Aside from supply/demand balances, that told gold traders that some pretty big customers are still hungry for gold at current price levels, and that there are ready buyers to snap up central-bank supplies.
That might not be enough to fuel another full-fledged bull run for gold, but it certainly removes some big questions that were overhanging the market.
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