Central Bank Demand Driving Gold Higher: CEO

Many central banks from emerging nations are looking at gold as a safe haven against the volatility of the global economy. Banks are also using gold as a way to balance foreign exchange risk and a way to shore up their risk strategy.

Published: Monday, 6 Feb 2012
By: Shai Ahmed
CNBC

Central Banks from emerging market nations are seeing gold as a safe haven against the volatility of the global economy and are keeping prices and demand stable, Mark Bristow, CEO at Randgold Resources, told CNBC.

“The supply side of the supply-demand equation is very tight. 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.

He added that in an increasingly uncertain world, central banks are using gold as an important way to balance foreign exchange risk and was a way to shore up their risk strategy.

An important driver in the price of gold has been consumer demand, particularly in India and China, where it is prized in religious and cultural ceremonies.

Bristow added that those consumers would continue to fuel demand because of the cultural significance of the precious metal and demand from the burgeoning 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.

Edel Tully, precious metal strategist at UBS, said gold remained a solid choice for investors, and prices will remain stable going forward.

“Gold has become more of the safe haven asset. That’s what gold investors have liked about it. Gold is not seeing the big declines we saw in November and December,” Tully said.

She cautioned that gold, while still favorable, was not the all-out bullish call it had been for investors in the past.

“Although gold is not in the all-out bullish camp yet, investors have been adopting a more friendly approach, but they are not going all bets in on gold—yet,” she added.

She said gold was supported by bargain-hunting and physical demand for the metal and forecast the range to remain at around $1,700 an ounce.

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