Gold Hits US$1,190 as More Central Banks Buy

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Gold Hits US$1,190 as More Central Banks Buy

Source: Reuters, Frank Tang and Jan Harvey��(11/25/09)

"traders speculate that more central banks, particularly in Asia, could be open to gold acquisitions. . ."

Gold prices hit record highs above US$1,190/oz. Wednesday as the dollar fell sharply and the market expected central banks from emerging economies to keep buying bullion from the International Monetary Fund.

Gold prices have risen nearly 15% since the beginning of November, on a combination of central bank interest to diversify into the metal, a steadily falling U.S. dollar and inflation worries.

Late on Wednesday, the IMF said it had sold 10 tons of gold to the Central Bank of Sri Lanka.

"We have had relatively supportive news from the central banks, particularly in Asia, confirming that there is demand for gold as a means of diversifying their large foreign exchange reserves," RBS Global Banking & Markets analyst Daniel Major said.

"There is plenty more potential for central banks to buy either IMF gold or other gold in the market to try and boost their reserves," he added.

Investor sentiment was bullish, highlighted by the news that the U.S. Mint said it was suspending sales of the popular American Eagle one-ounce gold bullion coins due to strong demand.

Spot gold hit a high of US$1,190.20 an ounce and was at US$1,189.65 an ounce at 3:39 p.m. EST, against US$1,168.90 late in New York on Tuesday.

India's Financial Chronicle newspaper said India is open to buying more gold from the International Monetary Fund, which has around another 200 tons to sell.

Russia, Sri Lanka and Mauritius have also previously announced gold acquisitions, and traders speculate that more central banks, particularly in Asia, could be open to gold acquisitions to diversify their foreign exchange reserves.

Expectations for further reserve diversification, as well as prospects for further dollar weakness and fears over inflation in 2010 have all fuelled investment demand for the precious metal, and could lead to further sharp prices gains.