Just when all eyes were focused on China, along came India
to spice up the gold market.
With this week's revelation that the International
Monetary Fund sold 200 tonnes of gold to India's central bank
during October (at prices averaging about $1,045 per ounce),
an enormous weight has been lifted from the shoulders of the
gold market. Notwithstanding the ever-present likelihood of
significant volatility ahead, I believe this move has paved
the road toward substantially higher gold prices in the
months to come.
200 tonnes sounds like an enormous pot of gold, but we can
use some comparisons to place the size of the transaction
into context. At 6.43 million ounces, the purchase is
approximately equivalent to one-half of intermediate miner
Eldorado Gold 's (NYSE: EGO)
12.7 million ouncesof total reserves. Popular gold
bullion proxy
SPDR Gold Shares (NYSE: GLD) reports holding
1,108 tonnes of gold as of Tuesday. Looking to the in-ground
stashes of major miners, India's new pile looks smaller
still.
Goldcorp (NYSE: GG) is sitting on reserves
equating to
seven times the sizeof India' purchase, while leading
producer
Barrick Gold (NYSE: ABX) retains some 3,877
tonnes of unmined reserves.
If you have followed the gold market as closely as this
Fool has over the past several years, you will recall that
the mere discussion of eventual IMF gold sales would
periodically derail gold price advances at conspicuous
moments in the metal's ascent. With this orderly transfer
from the IMF to India's central bank, the long-held assertion
by gold expert Jim Sinclair that IMF gold would never touch
the open market has thus far been proven quite correct. With
China considered foremost among eager potential buyers of the
remaining 203.3 tonnes slated for sale, the gold market is no
longer spooked by the specter of these dispositions.
Tuesday's rally was noteworthy for having occurred
alongside some serious relative strength in the U.S. dollar
index. Wednesday's further advance to a new high above $1,095
per ounce, meanwhile, coincided with a slide in the USDX
below 76 ... which I have offered as
a pivotal levelin anticipating the next step for
gold.
While near-term forecasting is
a reluctant hobby, I continue to invest with a purely
long-term perspective, and encourage Fools to maintain
unfettered focus upon the broader picture. Simply stated, I
reiterate
my $2,000 price targetfor gold. The
Market Vectors Gold Miners ETF (NYSE: GDX)
has nearly doubled over the past year, so piling into miners
indiscriminately is not advised. After taking a beating for
minor development setbacks,
Agnico-Eagle Mines (NYSE: AEM)
remains a favorite. For relative bargains, take a look at
these
mid-tier miners, or mine my
silverminer CAPS portfoliofor ideas.
This article was originally published as
Gold Remains a Coiled Springon
Fool.com
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