India buys 200 tonnes of gold

The $US6.7 billion ($NZ 9.3 billion) sale of 200 tonnes of gold to India's Reserve Bank by the International Monetary Fund propelled the precious metal to a new record high of $US1087.45 per ounce in New York this week.

Throughout October and November, gold has hit four new highs after it broke through the $US1000 mark in late-February this year.

Recently, with the US dollar, Euro, British Pound and Yen all weakening in the face of the global recession, governments and investors alike are turning from currencies to gold instead to underpin their respective treasuries and share portfolios as a hedge against inflation.

The IMF has had more than 403 tonnes of gold for sale since September and India's Reserve Bank, the first to make a purchase, bought the 200 tonnes at an average $US1045 during the past fortnight.

Craigs Investment Partners broker Peter McIntyre said the price of gold for the next 12 to 18-months was was expected to remain strong and buoyant as the world worked its way out of the present financial crisis.

"Gold is now working like an insurance policy, a hedge against inflation. There's very little confidence in currencies at present," he said.

While long considered a safe-haven investment in times of trouble, gold was increasingly seen as an official reserve, as opposed to the present weakened US dollar. Investors are considering gold as a standalone asset class in portfolios, not just a safe haven.

The US central bank, the Federal Reserve, was meeting yesterday to discuss increasing its interest rate, at present in a floating range of 0%-0.25%, to stimulate the recession-hit economy, and any upward move would not be greeted well by markets.

Mr McIntyre said central banks had in the past been criticised for increasing interest rates again too quickly. The markets wanted the fiscal stimulus packages to stay in place for a further 12-18 months, not be undercut or stalled by interest rate rises.

Markets did not want to see a repeat of Japan's property woes, where inflation-adjusted property prices rose by almost 75% in the five years to 1990, but since then had slumped by about a third, with Japan's economy subsequently stalling, Mr McIntyre said.

The "sugar rush" of trillions of dollars pumped into numerous economies around the world to forestall the global recession and prop up the finance sector was seen as inflationary and would further underpin gold's strength, he predicted.

The Financial Times in London reported that the IMF planned to sell the remaining 203.3 tonnes to other central banks, or into the open market.