Gold has spiked on the news that Reserve Bank of India bought 200 tons of gold from IMF. On October 26, 2009 we reduced gold allocation to zero in our Multi Asset Global Allocation Model. At that time, we knew that IMF was planning to sell 400 tons of gold. This information was the
Trigger Event in our changing gold allocation to zero. We did contemplate that India, China and Brazil were the likely buyers. At this time, we do not know who is the buyer of the remaining 200 tons and the price paid.
We were of the opinion that the buyer will likely pay around $1020. $1045 purchase price has surprised us and shows eagerness of India to diversify its reserves into hard assets. Since our allocation model is a longer term model, we need to keep this purchase in perspective in the sense that even at this top dollar price, the total purchase price is about $7 billion. This is not material relative to India’s foreign exchange reserves.
As per our methodology, we will be carefully watching money flows into gold and the price action at various micro resistance and support levels. If the data is strong enough we may need to admit our mistake and add gold again to the portfolio model.
As a very short term trade, for aggressive accounts, short on gold right here around $1082. with more scaling in up to $1105. is worthy of consideration. For the purpose of this blog we will take this trade with stop band over $1105. and target band of $1052 to $1030.