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Investors, Central Banks Choose Gold as Safe Haven Asset

Release Date: 
Monday, February 6, 2012

Gold moved lower on increased debt concerns in Greece and a weaker euro. Gold was trading at $1719.10 per ounce at 6:14 a.m. Pacific Time on the New York Spot Market with silver at $33.41 per ounce.

The euro fell as Greek politicians wrangled over austerity measures required to secure a new rescue funds from the European Union and International Monetary Fund (IMF). Greece has passed the deadline for finalizing a deal on its second aid package.

Edel Tully, a UBS precious metal analyst, said gold remained a solid choice for investors, with increased physical demand supporting prices. "Gold has become more of the safe haven asset. That’s what gold investors have liked about it." She noted, "investors have been adopting a more friendly approach, but they are not going all bets in on gold-yet."

"Its inflation-hedging properties, its anti-ultra loose monetary policy (qualities) are in our view what will drive gold," said RBS analyst Nikos Kavalis. "Risk in the market is one of the supporting factors, but the monetary policy outlook is really the key factor… For the time being, we see gold over the next few months appreciating with other commodities," he said.

Central banks in emerging markets are using gold as a safe haven asset against the volatility of the global economy and foreign exchange risk," said Mark Bristow, CEO at Randgold Resources. "The supply side of the supply-demand equation is very tight," the mining company executive noted. "There is a growing demand side from the increase in jewelry off-take in central Asia, but also the central banks starting to buy gold. These are the emerging markets central banks, not the G20 central banks," Bristow said.

Bristow noted that Asian consumers are fueling gold demand due to its cultural significance and increased demand from the growing middle class. "People in China buy gold because it is gold; jewelry is the means (by which) they buy gold. There is great affinity for gold in China, and it’s a demonstration of achievement and wealth. Gold has always been part of the country’s persona," he said.

(Sources: "PRECIOUS-Gold slips as Greek bailout talks hurt euro, stocks," Reuters, February 6, 2012; "Central Bank Demand Driving Gold Higher: CEO," CNBC, February 6, 2012)

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