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July 21, 2009
Global demand for gold soared 38 per cent in the March quarter compared with the same period in 2008, as investors banked on the metal’s safe-haven role amid tough economic conditions.
Strong investor appetite for gold countered a fall in demand for the precious metal in jewellery and industrial uses, World Gold Council investment research manager Rozanna Wozniak told a teleconference on Tuesday.
“Jewellery demand weakened, which isn’t surprising given the extreme economic conditions that consumers face: rising unemployment, falling house prices and low levels of consumer confidence,” Ms Wozniak said.
“Industrial demand also weakened. Once again, this is hardly surprising given the economic conditions.
“The biggest driver in that sector was electronics demand.
“However, investment demand easily offset weakness in the other two sectors.
“It literally boomed.”
Ms Wozniak did not offer a forecast for the gold price but suggested it would remain strong, although volatility had increased over past 18 months.
She said the gold price reached record levels in some currencies during the March quarter but not in the precious metal’s trading currency, the US dollar.
Some analysts say ongoing economic uncertainty will underpin a return to a record gold price of more than $US1,000 an ounce in 2009/10.
The spot gold price in Sydney was $US948.45 per fine ounce on Tuesday.
“We can potentially see gold benefiting whether there is an environment of deflation or one of inflation,” Ms Wozniak said.
“In an environment of deflation, you would expect gold to benefit from its safe-haven status.
“However, you would also expect that at some stage, the monetary and fiscal stimulus and quantitative easing will kick in.
“There is a real risk that inflation will raise its ugly head at some stage … next year or the year after.”
Ms Wozniak said gold’s diversification role in a broader investment portfolio had been its most important quality during the financial crisis.
She also said the World Gold Council had determined that the optimal allocation of the precious metal within an investment portfolio was between 4.4 and 10 per cent.
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