Sri Lanka purchased 10 metric tons of gold from the International Monetary Fund today.  The purchase was made with SDRs, the IMF’s currency denomination, but the price is equivalent to about $375 million.

Sri Lanka is cointinuing the trend among Central Banks this year, who are snapping up gold as soon as it becomes available. India and Mauritas have also purchased gold from the IMF this fall, and China and Russia have both increased their gold reserves substantially this year.

The Reserve Bank of India (RBI) is in talks with the International Monetary Fund to purchase the remaining 201.3 tons of gold that the IMF has offered for sale. However, there may be some competition as other Central Banks look to strengthen their reserves.

An Indian government official stated

RBI is an independent body, and the government does not interfere in its affairs. It will get the gold if its bid is successful and at the price it has offered.

The RBI purchased 200 tons three weeks ago from the IMF and already has seen a gain of $800 million from that investment!

Should another global financial crisis occur in four or five years, the public will not bail out the financial industry again, warned Domnique Strauss-Kahn, the managing director of the International Monetary Fund. Strauss-Kahn even suggested that the financial sector “contribute” more to cleaning up it’s own mess:

Most advanced economies will not accept any more [bailouts]…The political reaction will be very strong, putting some democracies at risk. I do believe that the financial sector needs to contribute both to the costs of the financial crisis and to reduce recourse to public funds in the future.

The “man on the street” will not stand for more bailouts, Strauss-Kahn belives, and so stressed the imperative that banks behave responsibly, especially as the global economy is still “highly vulnerable.”

The message we can take home as consumers is actually rather ominous – that the director of the IMF thinks a bailout would even be requested in four or five years! This message could be interpreted as a warning – a warning from Strauss-Kahn to the financial industry. He seems to be telling them to get it together because the public won’t tolerate this again. Which could mean that he sees evidence of a lot of the same actions that brought about the crisis to begin with.

If you are feeling the power of the old adage “once burned, twice shy,” you aren’t alone. So many investors are choosing to buy gold as a way to gain control of their wealth again. Gold offers protection from irresponsible practices rampant in the financial industry. Which may be exactly what you need if the powers that be don’t heed the IMF’s stern warning.

In order to maintain a stable global economy, the head of the International Monetary Fund  stated today that its impractical to depend on the dollar as a reserve currency.  Dominique Strauss-Kahn, the managing director of the IMF, sees that the interdependence of economies means that a bad year domestically for a reserve currency will result in problems for the rest of the world. The special drawing right is the IMF’s in house currency and perhaps could take the dollar’s place. India purchased 200 metric tons of gold from the IMF last month using SDRs.

It is unrealistic to assume another single currency could replace the dollar, according to Mr. Strauss-Kahn. “That probably has to be a basket. In a globalized world there is no domestic solution.”

It is noteworthy that gold’s rise is not merely the result of the dollar’s decline. This year, gold has gained against the euro, pound, yen and dollar, which are all the currencies in the SDR basket.

Mauritas has purchased 2 metric tons of gold from the International Monetary Fund. The small island nation in the Indian Ocean is following the trend of many central banks who are attempting to shore up their reserves with gold as the dollar slumps further. So many emerging nations are currently dependent on the dollar, which is currently at a 15-month low, and have decided to buy gold as soon as it becomes available to safely hold their wealth.

“There are a lot of uncertainties in the U.S. dollar and not much confidence in other currencies. Gold is a viable option,” Shane Oliver, an investment strategist, told Bloomberg.

The IMF still has more gold to sell, and central banks are lining up for the opportunity to hedge their wealth with bullion. Two unnamed high-ranking Chinese government officials told Market News International that China is interested in buying the IMF’s gold.

We have seen a lot of excitement today as gold reached new records, with a high that was only a couple bucks shy of that magical spot price of $1100/ounce. The huge driver of this, is, of course India’s big purchase from the IMF. All in all, India has become the tenth largest holder of gold in the world. But India’s growth has been so massive, that of the nation’s foreign exchange reserves, only six percent of it is gold. There is a lot of potential for new acquisitions. China also is underbalanced, in that gold only makes up two percent of the nation’s $2.3 trillion foreign exchange reserves.

The forex reserves of Western nations have the distinction of holding larger percentages of gold. Gold makes up about 77% of the US’s, 69% of Germany’s, 66% of Italy’s and 70% of France’s. The big Central Banks are only allowed to sell 400 metric tons of their supply at a time, so as not to flood the market and dramatically change the price of bullion. But its unlikely that they will even want to sell, as more and more household investors get into the market and the voracious appetite of Eastern Central Banks make the demand for gold higher than ever.

One fact this is not being given much fanfare in all the news stories and press releases is that India did not buy gold from the IMF with dollars. Instead, they used SDRs, otherwise known as special drawing rights currency. SDRs are made up of pounds, euros, dollars and yen. So what does this mean?

It could mean that the IMF didn’t want billions of US dollars. The IMF sold their gold for humanitarian reasons, to increase their lending capacities to developing nations. Maybe they didn’t want to be on the wrong end of the weak dollar and requested that the trade occur in this way.

Or it could mean that India was being kind to the US and didn’t want to appear like it was dumping billions of dollars (when, essentially, that is exactly what India was doing). This is what analysts at BNP Paribas believe, “By using SDRs, the Reserve Bank of India left the impression that it does not like paper currencies in general, suggesting that other major Western currencies were not seen as any better than the USD.”

Either way, the greenback is losing friends.

Gold hit a new all time high today of $1,081/troy ounce! The metal has gained 23 percent so far this year, and has gained in similar percentages steadily for the last five years.

Analysts are attributing the gains to the Reserve Bank of India’s huge purchase of 200 metric tons of gold from the IMF, despite a somewhat stronger dollar. The IMF had announced the decision to sell over 400 metric tons of gold back in September, and there were fears that such a large influx of supply would drive down the price of gold. This was avoided because the deal between the IMF and India’s Reserve Bank occurred off the market. Now investors have even more faith in gold’s price support because analysts are predicting that China will purchase the rest of the IMF’s gold in a similar manner.

“It’s pushing gold higher because it means that gold won’t come onto the open market,” said Tom Pawlicki, an analyst at IMF Global.

The Reserve Bank of India has bought 200 metric tons of gold from the International Monetary Fund (IMF). This is the IMF’s first gold sale in nine years. It accounts for half of the gold that the IMF told the public would be available for sale in September. There was much anticipation that China or other Asian nations would be interested in the purchase.

N.R. Bhanumrthy, a professor at the National Institute of Public Finance and Policy, says fears about the weak dollar are the main cause for the purchase:

“The fall in the U.S. dollar seems to be pushing all the central banks to strengthen their portfolio with gold. Gold is a safe store of value compared to the U.S. dollar.”

The IMF is the third largest holder of gold bullion in the world, and the entire sale of 400 metric dons they are planning this year accounts for one eighth of its entire reserves. The funds gained from the transaction will be used to lend money to developing nations at low interest rates. “This transaction is an important step toward achieving the objectives of the IMF’s limited gold sales program, which are to help put the fund’s finances on a sound long-term footing and enable us to step up much-needed concession lending to the poorest countries,” said Dominique Strauss-Kahn, the managing director of the IMF.

The trend to invest in gold will the dollar’s bumpy ride continues extends from large institutions to household investors. “Gold production has been declining for the past seven years, while demand, particularly the investment demand has been growing steadily,”  Krishna Reddy, a precious metals analyst told Bloomerg. “Central banks and even ordinary investors want to own more gold.”

World unemployment has not peaked. Actually, don’t count on it peaking for another eight to twelve months, according to Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF).

While in countries like the US unemployment means a decrease in consumer purchasing power and a probably rise in foreclosure, in developing countries, Strauss-Kahn says the consequences are much worse “it goes to a question of life and death, or starvation.”

In a slump not seen since World War II, the global economy is predicted to shrink by 1.1% this year. With such lackluster prospects on a global scale, its no wonder countries’ Central Banks are shoring up their assets by buying gold bullion, bracing themselves for the economic drops ahead.