By Lucy Battersby
GOLD prices were heading towards record high levels last night after India's Reserve Bank purchased 200 metric tonnes from the International Monetary Fund for $US6.7 billion ($7.5 billion).
The rising price of gold was in contrast to the Australian dollar, which fell after the Reserve Bank board decided to raise the official cash rate.
International markets were disappointed the increase was only 0.25 percentage points, although there was less sharemarket trading than usual because of the Melbourne Cup.
India bought the gold to help with its ''foreign exchange reserves management operations'', its central bank said, and acquired the gold off-market over a two-week period at daily spot rates.
The spree finished on October 30, but the gold is yet to be delivered.
The IMF plans to sell 403 metric tonnes of gold to beef up its cash supplies to lend money to developing economies at reduced rates.
Gold was trading at $US1063.97 an ounce last night, just short of the historically high of $US1070.80 it reached on October 14.
The sharemarket was flat yesterday due to the holiday in Victoria. The S&P/ASX 200 lost 8.9 points to close 0.2 per cent lower at 4532.5 points. Turnover and volume were well below average for a Tuesday.
The materials and financial indices moved up just 0.38 per cent and down 0.52 per cent respectively. The goldminers Newcrest and Lihir rose substantially. Newcrest gained $1.26 to close at $33.38 and Lihir was up 13c to $3.17.
The Australian dollar dropped nearly one US cent as the Reserve announced the official cash rate would rise to 3.25 per cent.
Ironically, it was the high dollar that discouraged the RBA from putting the cash rate up to 3.5 per cent, said the St George economist Amanda Tan. ''[The RBA] noted that 'the rise in the exchange rate is likely to constrain output in the tradeables sector and dampen price pressures','' she said in a note to clients.
''In other words, the high Australian dollar could be argued to have done part of the central bank's job.''
Analysts expect interest rates to reach 3.75 per cent in December and 4.5 per cent by June 2010.