Looming inflation may keep gold prices high, says WGC

Gold prices may continue to rise this year due to persistent threats over financial recovery of the developed economies and concerns over inflation. Investment in gold is considered as a safe hedge against inflation.

“Investors are worried about the price stability. The money supplied to the market in 2008 is posing threat of inflationary pressures. Investors, who do not believe that higher inflation will materialise, worry about the dollar outlook,” found the latest report from the World Gold Council (WGC).

Gold price rose for the ninth consecutive year in 2009 to end at $1087.50 (Rs 50,000) an ounce (28.3 gm), as against $869.50 an ounce at the end of 2008. The average gold price rose 11.5 per cent to $972.35 an ounce in 2009 from $871.96 an ounce during the previous year.

Recovery in the global economy, especially in countries like India and China, is also likely to boost jewellery demand. However, jewellery was not a primary source of support for gold prices in 2009. Investment flows, dollar-hedging, inflation protection, and buying by central banks propelled the yellow metal to successive new highs, the report added.

The global economy began to show tentative signs of recovery since the second half of the year 2009. The pace remained uncertain. While some developing economies, like China, seem to recover at a healthy pace, their developed counterparts, in particular the US and Europe, are still far from returning to a “normal” rate of growth.