The announcement last week of India’s official purchase of 200 tonnes of gold from the International Monetary Fund put an amphetamine-like push into the metal’s price. Before that news, the recent rally to new highs seemed to be tiring out, with the technicians citing this momentum line rolling over from that support level. The combined increases in open interest in the gold futures, and the gold held by the exchange traded funds, have not kept pace with the accelerated rise in the price of the metal; in other words, we have seen a rally on (apparently) weaker volume. That may not bode well for a strong gold market in the near future.

To my way of thinking, though, there has been other news of official doings, outside of India, that indicate a much higher gold price over the longer term, whatever happens over the next few months. It is not central bank gold purchases, though, that are the key support; it is the prospect of more extensive controls on the international flow of capital. Specifically, it was Brazil’s imposition of a 2 per cent tax on capital inflows in October, not India’s gold purchases that month, that was the most significant gold-positive signal. In the past, multilateral officials, such as the managing director of the IMF, would have murmured disapproval, with suggestions that anti-liberal moves such as this should be reversed as quickly as possible. Not now. Brazil’s apparent attempt to keep down the real’s appreciation, probably to ensure export competitiveness, is accepted and applauded by multilateral-dom as mainstream political economy.