| Reserve Bank of India Governer Duvvuri Subbarao | | | | Sri Lanka's move was seen as providing further |
| has done something the average Indian housewife | | | | evidence that central banks in emerging economies |
| would readily approve of. The RBI's decision to quietly | | | | have decided to increase their gold holdings to |
| buy 200 tonnes of gold worth $6.7 billion from the | | | | diversify their currency reserves. |
| International Monetry Fund (IMF) has surprised many | | | | The gold price has hit yet another new high on the |
| around the world. | | | | back of a floundering dollar and rising concerns over |
| Although Indians are the world's largest consumers of | | | | major central bank policies. Following the weekend's |
| gold, in the form of jewellery, bars and coins, it wasn't | | | | G20 meeting to discuss economic stimulus measures, |
| much sought after by the RBI. Of India's $285 billion | | | | the spot gold price sharply broke through the |
| forex reserves, only $10 billion was estimated to be | | | | psychologically important $1,100 per ounce level to hit a |
| held in the form of gold. | | | | high of $1,132.95 per ounce on Monday. "Every other |
| In fact, the proportion of gold as part of its total foreign | | | | central bank must now be wondering who will move |
| reserves has gradually declined over the years, from | | | | next," said Francisco Blanch, head of global |
| 20 per cent in 1994 to below 4 per cent now. The | | | | commodities research at Bank of America-Merrill |
| latest tranche of gold shopping increases its proportion | | | | Lynch. |
| to 6 per cent, making India's central bank the tenth | | | | Nothing that discomfort over the dollar's weakness |
| largest accumulator of gold. | | | | was mounting, BofA-Merrill Lynch said India's decision |
| While the sale would provide the cash-strapped IMF | | | | to diversify into gold could signal a realisation in the |
| with much needed liquidity to enable low interest rate | | | | developing world that the "beggar-thy-neighbour" |
| lending to poor countries, India's purchase is seen as a | | | | policies pursued by some G10 nations to get out of |
| move to diversify its reserves in a volatile currency | | | | recession had natural limits. Mr Blanch reiterated his |
| market. But some also see a geopolitical motive behind | | | | forecast for gold to break through $1,500-an-ounce |
| the deal. India, like China, is also seeking closer ties with | | | | within 18 months. "The market could of course move a |
| the IMF to assert its authority on the global economic | | | | lot faster if emerging market central banks rush into |
| stage. Prices rose after Sri Lanka too bought a small | | | | gold sooner rather than later" said Mr Blanch. |
| volume of bullion to diversify its reserves. | | | | |