Asian demand to 'extend gold's bull run'

PUBLISHED : Wednesday, 27 June, 2012, 12:00am
UPDATED : Wednesday, 27 June, 2012, 12:00am

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Predictions that gold prices will fall over the long term have underestimated the strength of demand in Asia from investors and central banks, according to World Gold Council managing director of investment Marcus Grubb.

The council, which represents the world's largest gold miners, believes bullion prices can extend a decade-long bull run in the long term despite the deepening European sovereign debt crisis sending gold prices down from the record high of US$1,923.70 an ounce seen in September last year.

Gold, a safe-haven asset, has fluctuated within about US$50 an ounce on either side of US$1,600 for most of the past two months, as speculation of a possible third-round of monetary policy easing, in the form of purchases of government bonds and other debt instruments by the central bank, did not materialise.

However, comments by US central bank head Ben Bernanke had some analysts thinking it may be deferred instead of ruled out.

Some market pundits, including analysts at British bank RBS, say gold prices will ease in the long term despite rebounding in the short term from present levels after an 18 per cent correction since September.

They tipped average gold prices to rise to US$1,800 an ounce by this year's fourth-quarter, when it will see its 'last hurrah' and trend downward to an average US$1,200 an ounce by 2015.

'The bull argument has been quashed,' RBS analysts said earlier this month. 'For gold to recover, a sufficiently dramatic event would be required in the global macro or geopolitical backdrop, for the large-scale safe haven bid to re-emerge.'

But Grubb begged to differ.

'If you look at a lot of gold price forecasts in the market ... they tend to project a rise to a peak and then it comes down again,' he said. 'This is a kind of view that's based on an understanding of gold that says its fair value is determined largely by Western markets' monetary policy and the American inflation rate, that's only half the story.

'The other half is Asia's growth, the commodities super-cycle, the fact that the demographics favour gold-buying in India and China and other parts of Asia, as well as central banks buying in Asia and Latin America.'

China was poised to surpass India as the world's biggest gold consumer this year, with demand projected to climb 20 per cent, the council said.

Besides strong investment and physical gold demand in China and India, Grubb said debates expected in the US in the late summer over whether to extend tax breaks due to expire in December, and whether to raise the government's debt ceiling may cause the US stock market to fall, which will bode well for gold as a safe-haven asset.

 

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