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04 October 2023

IMF sale may not stop gold from hitting $1,200 by April 1

Some analysts believe gold could touch $1,500 an ounce by the end of this yea. (REUTERS)

By Shashank Shekhar

A rising demand for gold from financial institutions looking forward to restructure their portfolio before March has offset a possible decline of the yellow metal's prices on the back of a recent International Monetary Fund (IMF) announcement that it plans to sell remaining 191.3 tonnes of gold.

Analysts based in Dubai observed that financial institutions, which are looking for safer havens in the countries where the financial year comes to an end in March, are heavily buying into the yellow metal, gold.

The bullion may touch a price of $1,200 an ounce by April 1, Sajith Kumar PK, CEO of Dubai- based JRG International Brokerage DMCC, said.

Gold stood at $1,118.50 an ounce in the international markets on Friday after having touched $1,125 an ounce earlier in the day.

"With almost all major currencies weakening, we are still bullish on gold. There is a feeling that gold remains the best investment option," said Sajith. The IMF issued a statement on Wednesday that it would sell the remaining 191.3 tonnes (6.15 million ounces) of gold.

This is the second tranche of IMF gold up for sale after about 212 tonnes were sold in international markets last year. Late last year, the first tranche of 403.3 tonnes of IMF gold was sold to the central banks of India, Mauritius and Sri Lanka.

The sales generated proceeds equivalent to $6.73 billion (Dh2.46 trillion) in case of India and $72m in the case of the Bank of Mauritius. The sale to the Central Bank of Sri Lanka generated $375m. IMF's sale of gold comes from its commitment to mobilise $17bn for lending to low-income countries, mostly in Africa, that have suffered from the global financial crisis.

Dubai analysts are sceptical about the sales designed to control the flight of capital to gold. "If you look deep, there is a possibility of such sales helping a flight of capital to dollar denominated products. Attempts to

restrain gold prices automatically benefit dollar denominated products," an analyst said.

In response to the IMF announcement on Wednesday, the price of gold initially fell sharply, as much as $24 in international markets, but later stabilised. "The steep fall came in a market that was watching a rise in gold prices. But the announcement was quickly factored in," a Dubai-based trader said.

Analysts have generally been bullish on gold. Francisco Blanch, Global Head of Commodities Research with Bank of America Merrill Lynch, recently told Emirates Business that the bullion could touch $1,500 an ounce by the end of this year. "It would depend on whether oil touches a price of $100 a barrel," said Blanch.


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