[Ashley Mathew]

The below link has a good article on the IMF selling 200 tonnes of gold to RBI in a bid to increase its capacity to lend to poor nations.

http://business.rediff.com/report/2009/nov/03/rbi-buys-200-metric-tonnes-gold-from-imf-for-6-point-7-bn-dollars.htm

Though I’m not sure I understand the full implications of such an action. If someone could please explain this in simpler terms.

[nitiksh]

See gold has always been stored/bought to store value. The whole assumption is that gold will never lose its value. Its also a hedge against inflation and fluctuating currency. There is a school of thought which is asking RBI to increase its gold reserve to hedge itself against a possible devaluation of dollar. Currently our reserves of around $280 billion is basically in dollar. There was hardly any gold in this reserves (it was 357 tonnes which was valued at $13.2 billion ). Now with this mega purchase, India has moved to over 557 tonnes of gold

IMF feels it has a lot of gold(over 3000 tonnes) and it should sell something from it to fund its operations in poor countries. So the 400 tonnes went under the auction hammer. Everyone had expected China to be the number one buyer but surprisingly India bought over half of it. The implications are straight :
·India feels its time to diversify its reserves, so its selling dollar and buy gold.
·Gold prices are going to remain firm as many other countries will follow India’s move.
·Since RBI has emerged as the best central bank in the world, its move will force a lot of people to think that dollar is losing its value.
·India’s deficit will look much better now as it has gold as an asset.
·China and USA is not gonna like this a single bit. Just be ready to hear some remarks from either China or USA on this(it will be either direct or indirect)
·If u r an investor, buy gold

[Ashley Mathew]

Thanks for the useful insight Nitiksh.

Below is a link passed on to me by a friend of mine. It gives a several stage analysis of this action by the RBI.
Reuters - Why is India buying IMF gold?


It does cover your point of RBI trying to diversify its reserves. However, it also brings out certain political implications of such a move. India, along with other emerging economies, have been continually pressing for greater influence in the world's economic affairs as it has grown rapidly into a $1.2 trillion economy. A move such as this would put India at an advantageous position while pressing for a larger representation at the IMF. Something, that China has been keenly looking at for quite some time now.Also India's share of gold holdings currently is around four times that of China's share. Well, in that sense you are right in saying that China will not be happy with this development as it puts India into direct competition with it.

[ABHYUDAYA GOYAL]

How tips actually work in a efficient market --
Here I am giving my view point on how the tips work.

Assumptions -- market is efficient, the market firmly believes in the analyst who is giving the tip and investors act on the basis on this tip .

Suppose an analyst on the basis of his analysis gives a tip that that a particular share is fundamentally strong, its prices would rise and the investors should invest in that share and than on the basis on the above assuptions the investors actually start investing in that share leading to a increase in its prices -- which would further drive up the prices and this would become a self-fulfilling prophesy and his tip would actually lead to its self-fulfillment .

please refute the above argument