Gold prices are expected to improve over the long term due to strong demand in China and India, according to the World Gold Council. There will be some short term adjustment but the long term outlook remains very positive. Gold would do even better if the US Federal Reserve does not taper is quantitative easing program and aggressively raises rates.
August 6, 2013 - 6:33PM
The gold price is expected to improve over the long term thanks to strong demand in China and India, the World Gold Council says.
"Once we've gone through this short term readjustment in the market we believe the long term outlook is very positive," The council's managing director of investment Marcus Grubb told the Diggers and Dealers mining conference.
"This has been a vicious correction."
Gold has lost 30 per cent of its value in 2013 and 45 per cent since it peaked in September 2011.
Mr Grubb believes interest rates will increase in the future, leading to a massive bond market sell off as investors move into equities.
"Six to eight per cent (annual) return on gold in a recovering world with stronger equity markets and rising interest rates ... that's the scenario I think is most likely," he said.
Gold would do even better if the US Federal Reserve does not taper its quantitative easing program and aggressively raises rates, Mr Grubb said.
He also highlighted the Chinese market, which soaked up a record 776 tonnes of gold over the past year, after accounting for domestic mine production and imports.
"This market has blown the doors off. This could be a 1,000 tonne plus market by the end of the year," Mr Grubb said.
During the steep gold price falls in mid-April, demand in China and India was so strong that many prominent gold jewellery stores and dealers sold all of their merchandise, accounting for billions of dollars worth of the precious metal.
China and India make up 50 per cent of the global gold market.
"There's no doubt of the strength of demand of this gold price and this demand isn't going to go away," Mr Grubb said.
"As India and China get more wealthy they're going to buy more gold."
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