Gold prices surge as India buys IMF reserves

• Gold hits new high on International Monetary Fund sale
• India diversifies reserves as dollar continues to weaken

• Graeme Wearden
• guardian.co.uk,
  
• Wednesday 4 November 2009 12.01 GMT

Economists said the Reserve Bank of India was not upbeat about the outlook for the US dollar as it bought $6.7bn of gold. Photograph: Siphiwe Sibeko/Reuters

Gold prices surged to a new high of $1095.05 an ounce this morning following the news that India has purchased $6.7bn (£4.05bn) of gold from the International Monetary Fund.

Yesterday the IMF announced it had sold 200 tonnes of gold to the Reserve Bank of India over the past two weeks. Traders reported that the huge sale had intensified interest in gold, which has now risen by almost 23% this year.

India said it was keen to diversify its reserves away from the US dollar, which has weakened in recent months.

Pranab Mukherjee, India's finance minister, said: "We have money to buy gold. We have enough foreign exchange reserves."

Erik Nilsson, senior economist at Scotia Capital, said the deal was "certainly indicative that the monetary authorities in India are not overwhelmingly upbeat about the outlook for the US dollar".

The dollar has lost 6.5% of its value in the last five months, measured against a basket of other currencies. This has helped to push up the price of commodities priced in dollars, including gold and oil.

The deal underlines how India's economy has been transformed since 1991, when a financial crisis forced the company to take a loan from the IMF – and ship its gold reserves to London as security.

The IMF declined to say how much India had paid for the gold, saying only that it got "a good price". It decided two months ago to sell 400 tonnes of gold this year, to raise money to help meet its obligations. In April it promised to lend another $500bn to countries that are suffering from the financial crisis.