Gold: Healthy, long-term demand
Gold has a special place within commodities, as it is an alternative to central-bank-backed currencies. We believe prices should continue to move higher as a result of structural changes in the market, including the tendency for emerging market central banks to increase their purchases of gold in efforts to diversify holdings.
Although gold currently makes up 75% of U.S. reserves, the figure is in the single digits for most emerging market central banks, indicating this demand may continue. Moreover, a lack of supply for retail jewelry in China, India and other emerging markets is also supporting demand, which should be positive for prices.
Global pressure has pushed gold lower recently, and in the short term it could trade below $1,500 per ounce. This weakness is driven by inflation, but as global inflation has moderated, yields are recovering. However, inflation in India and other emerging markets may yet spread to developed markets. Gold could trade higher over the longer term, and may reach new levels in 2013. We currently remain positive on the commodity.
Demand for gold, which comes from central banks, investors and jewelry manufacturers, shows no signs of slowing, supporting long-term valuations.
Central banks continue to buy gold
Ounces ('000)
Source: Bloomberg. As of March 31, 2012.
Investment and jewelry demands remain strong
% of total demand
Source: Bloomberg. As of June 30, 2012.
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