Private banks rethinking gold, seen next big buyers

By Jonathan Leff

KYOTO (Reuters) - Private banks could be the next big buyers in the global gold market, helping drive prices higher as they consider restocking bullion bars that were sold off in calmer times, the top HSBC gold trader said on Monday.

Jeremy Charles, chairman of the London Bullion Market Association and global head of precious metals trade at HSBC Bank, also said he expected central banks around the world to put the brakes on their plans to sell down gold reserves as they see other assets deteriorate, lending further support to prices.

"I think the institutional investors and private banks in particular will all be reconsidering their strategy. My belief is they are likely to want to own some gold again,"he told Reuters on the sidelines of the LBMA's annual conference. The current generation of private bankers destocked their gold holdings in the 1980s and 1990s to pursue higher-return investments in recent years, but are now seeing the wisdom of the previous generation's gold holdings, he said.

The deepening world financial crisis as the burden of toxic housing debt pushed U.S. and European banks to the brink of collapse has roiled investors globally, causing many to rethink their approaches and potentially putting a new shine on gold.

Charles also said he saw only 10 percent downside potential from the current gold price of around $875 an ounce, with far greater potential on the upside. He declined to give a price forecast.

"The premiums around the world tell a big story to me," he said. "The recent dip in the gold price has created massive demand from the retail investors."

Premiums to buy physical bullion, normally in the range of a few dollars, surged to more than $20 an ounce over the last few weeks -- the highest in recent memory -- amid an unprecedented spike in demand to hold gold bars or coins, he said.

The spike was caused by a combination of mounting anxiety tied to the U.S. financial crisis and relatively tame spot gold prices as financial institutions sold holdings to raise cash.