2011-11-19

World Gold Council presented a bullish outlook on the gold in its Gold Demand Trends report

The gold price rebounded Friday closing, advancing $5.20 to $1,724 per ounce. The price of gold stabilized following yesterday’s $44.53, or 2.5%, decline amid heightened European sovereign debt concerns and fresh worries over the prospect of a recession across the Atlantic. S&P 500 stock futures rose 8.40, crude oil climbed 1% to $99.79 per barrel, and the cyclically-sensitive copper price gained 1.2% to $3.45 per pound. Stocks, commodities, and gold received a boost from the news that the European Central Bank was actively purchasing Italian and Spanish bonds.

In Europe, yields on Italian and Spanish debt moved lower as the European Central Bank intervened to purchase the debt of these fiscally-strapped nations. How aggressive the ECB will be is the subject of much debate. What is clear is that yields must come down or countries such as Italy will face rapidly escalating debt to GDP ratios.

The crisis in Europe has caused investors to “move out of risky assets,” according to Marcus Grubb, managing director of investment research at the World Gold Council (WGC). “They move out of equities, they move into short-dated bonds and into cash,” Grubb added, “and they even move out of gold because they tend to take profit in it to shore up losses in the rest of their portfolio.”

Despite Grubb’s cautious near-term stance on the gold price, the World Gold Council presented a bullish outlook on the gold in its Gold Demand Trends report for the third quarter of 2011. “Increasing levels of inflation, the US credit rating downgrade, a worsening eurozone sovereign debt crisis and the lackluster performance of many assets drove investors to increase holdings in gold (during the quarter) in order to protect their wealth,” the report noted.

“Given gold’s proven risk mitigation properties, it is likely that investors will continue to seek protection from economic uncertainty, which shows no signs of abating,” the WGC contended. “The long-term fundamentals for gold remain strong, with a diverse and growing demand base coupled with constrained supply-side activity.”

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