The Glint In Gold Is Turning Brighter

Taking part in the session were representatives of the World Gold Council and governors of central banks, some of whom have been unloading their gold hoards.

Several reasons were given for the conclusion that gold prices would not fall further. First, global demand is growing, most of all in India. Second, demand and fresh production are more or less in balance, at about 3500 tonnes annually. Third, many mines become uneconomical at less than $270 per ounce, and many more at about $230 per ounce. This, it is argued, explains why prices have bounced back to just over $300. If prices fall further, supply will come down as mines down shutters.

A fourth reason given was that the main central banks of the world had more or less decided not to unload their gold stocks, and this includes the US, Germany, Italy, Britain and France. This, therefore, ruled out the feared prospect of vast quantities being unloaded and prices crashing as a result.

Finally, the protagonists argued that gold retains its mystique, is an inflation hedge in bad times, and has the character of a dollar-denominated asset in countries with weak currencies and where residents cant hold wealth in dollars. Also, in a country like India, income growth is almost certain to increase demand for gold because the current per capita consumption is no more than 0.7 grammes per annum.