The dollar is still losing its luster as the foreign reserve currency of choice. India has just bought 200 tons of gold from the IMF at $1,045 an ounce which is close to a recent record high of $1,070. The entire transaction is worth almost $7 billion. The move is seen as a way for India’s central bank to move some of its capital away from investments in the dollar.
The IMF may sell another 200 tons of gold in the relatively near future and most experts expect that the buyer will be China, which has foreign currency reserves of $2 trillion and might like to have its own hedge against the value of the American buck.
India is being explicit in its concern about the long-term value of the dollar. One senior official of the central bank there told The Wall Street Journal, “It makes sense to buy gold as it will appreciate more than the U.S. dollar.”
The equity markets may stay volatile as the global economic recovery stays uncertain giving central banks and investors another reason to move to gold as a “safe haven”. The transition to the commodity may drive down the dollar’s value even further which could help US exporters, but that is bound to increase the concern that the dollar is no longer the most important exchange currency.
Douglas A. McIntyre
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