LONDON (Commodity Online): Remember the impact of Reserve Bank of India's decision to buy 200 tonnes of gold from International Monetary Fund (IMF) in November 2009 had on the price of yellow metal? That time gold prices soared to new heights because the world feared that India is shifting its foreign reserves to gold expecting the dollar to crash.

And, once gold prices climbed up, it stayed there for long and now also the prices are expected to remain above $1100 per ounce levels. However, what investors failed to see is that with that action India's central bank has shown a way to other central banks in the world.

With the India move to buy 200 tonnes of IMF gold, other nations also followed suit. Several central banks started buying gold.

This is something that a number of countries are doing as well. Russia has been doing it for 20 years, as well as Venezuela and the Philippines - they have all been buying local production with local currency and either adding it to reserves or sometimes selling it to the market.

And, the impact of all this has come to a situation where central banks became buyers of gold in 2009 instead of sellers for the first time in last two decades. This happened mainly because of the 200 tonne purchase the RBI had done in November 2009.

Official gold demand resulted in net buying of 470 tonnes in 2009, the sector's first net addition since 1988. Central banks rekindled interest in gold as a hedge against potential repercussions after the worst economic crisis since the great depression. Net official sector buying included China's disclosure last year that it had secretly raised its gold reserves to 1,054 tonnes.

Renewed central bank interest was seen after India bought 200 out of the 403.3 tonnes of gold the IMF slated for sale last year. IMF has a further 185.7 tonnes of gold to sell.

Gold prices rose sharply over the course of 2009, from around $807.30 early in the year to as high as $1,218.30 in early December. The average gold price in 2009, $974.70, was 11.7% higher than 2008's average. This increase in gold prices in 2009 primarily reflected continued large-scale purchases of physical gold by investors.

Among the key trends in the gold market last year, gold prices reached record highs on a settlement basis for the third consecutive year in 2009. The official sector became a net buyer of gold in 2009, reversing a trend of being a net supplier of gold for most of the time since 1965. Mine production rose 2.7%, while total supply of newly refined gold entering the market rose 2.5%. Fabrication demand declined 16.9%, led by an 18.2% drop in jewelry use of gold.

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