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Friday, 6th November 2009 (828 views)

The Reverse Bank of India's (RBI) decision to buy 200 tonnes of gold under the International Monetary Fund's limited gold sales programme has been backed by investment experts.

Madhusudan Kela, chief investment officer at one of India's largest mutual funds, Reliance Mutual Fund, said it could a smart move for the bank given the weakness of the US dollar and continuing uncertainty about the global economy.

"It is a diversification of asset for the reserve bank and gold is a good source of investment," he commented.

The Financial Express newspaper said the move to buy physical gold was because India's existing gold reserves as a portion of foreign exchange reserves had been low and "dominated by the dollar".

Andrew Holland, chief executive officer at Equities-Ambit Capital, noted that in addition to protecting itself against the weakness of the dollar, the RBI's decision to buy gold is also a "move to hedge against inflation".

Gold has traditionally been seen as a safe haven from the effects of inflation for both institutions and individual investors.

 

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