At the end of last week certain sections of the media were picking over the bones of the gold market. The main focus of the reporting was that since the IMF had announced it would now be conducting "on-market sales" - selling directly to the bullion banks - no countries were interested in buying the remaining 191.3 tonnes of gold it had on offer. Thus, the precious metal was ready to slink into obscurity once more.
Obviously, while India, Sri Lanka and Mauritius bought a total of 212 tonnes of gold back in November, in terms of the financial markets, this is now ancient news. Where was China in all this? They have very little gold (less than 2 per cent of their total reserves). Shouldn't they have been trying to buy from the IMF? What about Russia and Brazil? It would certainly make for great headlines and would have given impetus to the market. Besides, an official from the central bank of Russia announced in 2005 that it had determined it was theoretically appropriate to hold a tenth of its reserves in gold - yet the current figure is less than half that. If not a central bank, then surely there must be sovereign wealth funds that would jump at the chance to access such a large amount of gold - and worth about only US$7 billion (Dh25.71bn) - without having to go to the market to buy it?
However, it seems that the answer was "no". Wrong. I think far more of an issue was the publicity afforded to these purchases. Generally, state institutions are not big fans of press coverage over their actions. While equity stakes might need to be divulged to comply with legal requirements, there is rarely such a responsibility when buying commodities - even ones that behave rather more like a currency, as in the case of gold. This has been the problem with the metal the IMF is selling. While that organisation has laudably decided that transparency is important, it seems that this might well conflict with the interests of some of their potential buyers.
While I am sure the Indian media is a model of self restraint, the situation is unlikely to be the same all over the world. The fact that we were able to learn from the IMF that not only did the Reserve Bank of India buy 200 tonnes of gold but they paid $1,045 per ounce for it means it is an easy calculation for anyone to determine the profit and, rather more pertinently, any loss on such a transaction. Should gold drop below its initial purchase price then there will doubtless be many detractors from the media and politics looking to decry the institution that was "foolish" enough to buy gold.
Far more desirable then, in the case of Russia and China, to continue to accumulate from domestic production. Other countries can buy it quietly from the market without the attendant headlines. An additional concern would be that if certain nations publicly buy gold, this is seen as a comment on the longer term direction of the US dollar with a far more ruinous impact on the overall value of a country's wealth. How often have the financial markets lurched one way or the other reacting to reports that oil might be priced exclusively in euros, that diversifying reserves away from over reliance on the US dollar is actually a statement to divest from that currency completely?
For China, any suggestion that buying gold is seen as a negative comment on their commitment to US government debt would be far more expensive than the benefits of diversification that such an overt purchase of gold might have. So, while certain sections of the media might feel confident in highlighting the lack of sovereign desire to own gold, it is more a lack of interest in the publicity that such a purchase from the IMF might engender that is the problem.
More generally, there do remain a great many investors looking at alternative investments. These range from individuals looking to diversify their own portfolio to extremely large sovereign wealth funds. For many institutions, gold is the obvious beneficiary of this desire. While gold's performance against the US unit has not been too exciting so far this year, we have seen fresh all-time highs against the euro.
Ultimately, while it seems likely that issues surrounding some members of the euro zone will be resolved, there will remain that nagging concern that no risk is absolutely quantifiable and the attractions of an investment that is not a call on any other institution, and where the payout is not contingent on an abstruse branch of mathematics, will remain attractive. In short, while last year was about low interest rates and a weak US dollar, this year the message is far more about portfolio diversification and the reassurance that adding gold can bring.
Jonathan Spall is director, commodities, at Barclays Capital and is based in London