Andrew Snyder of Today’s Financial News discusses the significance of India’s recent massive Gold purchase.
We quote and bold the important analysis:
But today’s news proves otherwise. It turns out India is on a diversification spree of its own, desperate to hedge against any unfavorable moves in the American dollar.
With just $200 tons left, there is not much gold left for other nation’s to get their hands on. $7 billion worth of cash is nothing for a country like China that right now holds nearly a trillion dollars worth of reserves.
The market’s logic for sending prices higher today is simple supply and demand. With less surplus available from the IMF, countries looking to diversify will have to hit the spot market.
Higher demand equals higher prices.
I have been writing about China’s growing commodities carry trade for months now.
It is the process where Beijing (and now India, evidently) uses its pile of increasingly depreciating dollars to buy commodities. It then sits on the commodities for a bit and sells them at a premium in the domestic currency.
This phenomenon alone creates fantastic commodities market bullishness.
But for gold longs, the timing of today’s announcement from the IMF could not have been better. It meshes perfectly with the increasing volatile equities market.
Not only can gold bugs raise prices due to increased diversification demand, but they can also raise their asking price due to increased flight to safety.