Now the RBI is paying hard cash for the gold, meaning they won't pay using IMF Special Drawing Rights or any such. There's speculation that the RBI sold US T-Bills to pay for it. Which causes people to think the US will get all jittery because oh my god, people are running away from the dollar!
That is just silly.
India has 280 billion dollars of reserves. This $7 billion deal is like a drop in the ocean. There are not that many 200 ton deals to go around, and we can't diversify enough using gold, and if we tried too hard every country will do it and drive the price of gold to crazy levels.
Which is good for my son's education fund. But I digress.
Gold is around 6% of our total forex reserves - less than $15 billion. That the RBI is buying is interesting but only on influencing sentiment. There is simply no way to diversify the $280 billion easily. China's got about 3 times our Gold reserves, and has been stockpiling commodities for a long time. Still, that doesn't make a dent on their dollar dependance.
So it might be just posturing. With the US Fed saying things like "Exceptionally low rates for extended periods of time", there is probably a fear that the dollar will be toilet paper except toilet paper is cleaner. This could be a signal that more of such measures will be taken. But the US will be hardly bothered about a piddly 7 billion - in fact they'll probably not be bothered until it's too late. In the interim, it's better to do larger diversifications (set up infra funds using the reserves, buy different currencies, lend money to companies here and buy lots of companies abroad).
Gold, though, is an interesting interim play. I'll stay long on it for a bit.
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>just was thinking how come Deepak has not put a post on RBI buying gold..though there you are..
Two points to note however …I think it is a smart move on RBI part and they have surprised the entire world to be the first to buy it at all time high prices (just 10 days ago)…IMF was announcing that they will sell gold 404 tons in September and China was suppossed to pick it up but only if given a discount on market prices, RBI seems to have bought at much higher prices now…
I think the government all over the world have always tried to manipulate the price of gold as gold increases over $1000 it threatens the fiat currency fractional currency regime and they try various means to deflate the price and this sale announcement from IMF could have been one of them, I am sure China would have been surprised as to how India beat them to the post..
Not surprisingly RBI has not mentioned anything about the gold buy in its weekly bullet in, it could be true that they have sold US treasuries and bought the gold…quite possible now with the dollar index hitting a new low every month…
11.08.09 at 3:31 PM
>The price of Gold is continuously rising. Further buying of Gold will not be appropriate as there is also change for falling in the price. It can buy it at that time.
11.09.09 at 2:52 AM