05 November,2009 11:39 AM IST | | IANS
India's purchase of 200 tonnes of gold for $6.7 billion from the International Monetary Fund (IMF) "shows central banks are getting on board with the idea that the bull market in gold still has legs," according to Forbes magazine.
"India's purchase provides positive reinforcement for gold investors that the bull market in gold is intact," the leading US business magazine said, citing David Rosenberg, chief economist at Canadian wealth management firm Gluskin Sheff.
Richard Ross, head of global technical strategy at New York brokerage Auerbach Grayson, agrees. "India's move, which occurs at a time when gold prices are at record levels, speaks very loudly to the bullish undercurrent of demand."
The Reserve Bank of India (RBI) announced on Wednesday the purchase of 200 tonnes of gold under the multilateral funding institution's limited gold sales programme for central banks amounting to 403.3 tonnes.
As a result, gold rose to $1,079 an ounce, despite the dollar hitting a one-month high, which Forbes sees as an important signal since a stronger greenback is typically bearish for dollar-denominated assets like gold and crude oil.
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Auerbach Grayson's forecast calls for a swift move up to $1,150 an ounce, with a likely climb up to $1,350 in the next 12 to 18 months, Forbes said.
Jeffrey Nichols, senior economic advisor to Rosland Capital, has a similar view, maintaining his expectation that gold will breach the $1,100 threshold by the new year, and he believes any dip under $1,050 will be short lived, it noted.
The US magazine said Nichols also found it important that India was the first buyer in the IMF sale, since a purchase by China may have opened a can of worms with regards to the US dollar and led to posturing between government agencies.
But in Rosenberg's view it ultimately didn't matter which central bank came in to buy the IMF's gold, just that one did, Forbes said.
"It's not unlike Warren Buffett buying a railroad," Rosenberg said, referring to the $34 billion acquisition of Burlington Northern Santa Fe by Berkshire Hathaway. "When you have a large buyer come in at a prevailing price, it instills confidence in the market."
India remains the largest consumer of gold and imports around 800 tonnes of the yellow metal each year, which is nearly 20 per cent of the global demand.
