India's big vote for a gold rally (and the world can't get enough of the shiny stuff)

MSN Money ^ | 11/9/2009 | Bill Fleckenstein

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As regular readers know, I have been advocating the purchase of gold for quite some time. The big news in the gold market last week was the fact that India bought half of the gold the International Monetary Fund had said it wanted to sell.

(I'll be interested to see who takes the other 200 tons, and I would not be at all surprised to find out that it's China.)

As my ever-eloquent good friend Jim Grant of Grant's Interest Rate Observer said to me, "So much for the modern conceit that gold isn't money!"

Folks might remember how the gold market was criticized as overpriced (as gold rallied from $250 past $1,000 an ounce) every time the possibility of the IMF selling its gold was raised.

Well, here the IMF did finally sell half of its gold -- and at basically a rounding error off the all-time-high price, now above $1,100.

That brings up an old stock market saw: that in a bull market, the market rallies to supply. It seems like an impossible observation, yet perversely it often tends to be true.

It's worth noting that the IMF sale is just one of many bricks in the gold market's wall of worry, another recent one being the thought that the price of gold topped $1,000 only because Barrick Gold (ABX, news, msgs) had reduced its hedge position, when it turns out that the company hadn't finished that process, as 1.9 million ounces remains to be closed out.