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Why India is going heavy on the gold
Gold bars at Shinhan Bank in Seoul
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TEXT OF STORY
Kai Ryssdal: If you took a pass on gold a year ago when it was around 800 bucks an ounce, you're probably kicking yourself right now. Gold touched $1,095 an ounce today, thanks in large part to India. Earlier this week the International Monetary Fund announced it had sold a whopping 200 metric tons of gold to the Indian central bank. Marketplace's Rico Gagliano reports on the sale, and why India's so keen on the yellow stuff.
RICO GAGLIANO: Back in September, the IMF announced it was offering about 400 metric tons of gold for sale to the world's central banks. Most cash from the sale will fund an endowment to cover the IMF's operating costs. None of that was surprising. But when India scooped up half the gold? That was a surprise.
DAVID KOTOK: Two hundred tons of gold is a very large transaction.
That's David Kotok, of Cumberland Advisors. He says India's purchase sends a positive signal to investors who're bullish on gold.
KOTOK: If India would buy 200 tons, we could maybe expect somebody else to do it. If institutions raise their appetite for gold holdings, that is likely to drive the price much higher.
But India may also be sending a negative signal that it's worried about the value of major currencies. Especially as central banks around the world pump new cash into their economies.
Mike Levy is president of futures firm Cannon Trading.
MIKE LEVY: If those central banks figure out that if they take this money out of the system again, it's gonna cause more havoc than anything else, they might decide to keep it in the system and create inflation.
One hedge against that? Gold. Cumberland's David Kotok says there's evidence some Middle Eastern institutions have been secretly squirreling away gold for a while now. And some experts speculate China might step in to buy the remaining 200-or-so metric tons of the IMF's gold.
I'm Rico Gagliano for Marketplace.
I have two questions regarding this rather substantial purchase:
1. Would the buyer (India) receive some sort of volume discount on 200 tons (tonnes? metric tonnes?) of gold? Or is the market price actually the "Nation-State" valuation, with anyone buying some miniscule amount - like a thousand pounds, for instance - paying an adjusted (up) figure?
2. Presuming (and I'm just guessing here) that India paid the IMF from their vault full of American dollars, what does that do to the value of the $US? I would that with such a major transaction, the significant transfer of funds would have exactly the opposite effect on the currency that the sudden diminution in the supply of gold will have on that metal's price, yes? Gold goes up but the dollar goes down. And China has got to be pissed, right!?!
