By Nicholas Paler
3 November 2009 (CityWire) — Gold leapt to a new high on Tuesday afternoon after the news emerged that India had been on a buying spree.

While the precious metal has pulled back from recent peaks in the last few weeks, this week has seen a dramatic surge initially driven by renewed fears about the cost of bailing out the banking sector.

This move was exacerbated today by news that India’s central bank had bought 200 metric tons of gold from the International Monetary Fund (IMF) in October.

As the news emerged of the purchase, gold broke into new territory, hitting a peak of $1,080.6 per troy ounce…

Ben Coleman, commodities trader at ETX Capital, said: ‘Buyers for gold continue to squeeze the price higher spurred on by India’s record purchase. The question on trader’s lips’ is which central bank will buy next?’

The Reserve Bank of India played down the purchase after stating it was nothing more than part of its foreign-exchange reserves management operations.

The Indian finance minister, Pranab Mukherjee, reportedly said: ‘I would have advised the governor of RBI to buy gold as our forex reserve is comfortable. The RBI has done just that. That doesn’t mean we don’t prefer dollar any more or like gold any better.’

[source]

RS View: Of course you’re going to hear these sort of mitigating words from government monetary officials regarding something of this delicate sociopolitical nature.

But surely the most significant thing in of all of this is something that hasn’t yet received comment. Anyone with a career even remotely tangential to the bullion market soon gains a cultural perception/appreciation that Indians are among the world’s most shrewdly price-conscious shoppers when it comes to buying and selling gold. Therefore, the fact that it was none other than INDIA making this very public purchase from the IMF — even at prices near all-time record highs — bodes extremely well for psychological acceptance of these price levels and sets the global stage for expectations of higher prices going forward.

R.