MILAN (Reuters) - Gold prices are set for a 12th consecutive year of gains despite volatility, with investor demand likely to be spurred by unfolding euro zone sovereign debt crisis, a senior official of the World Gold Council (WGC) said on Thursday.
“We believe this will be the 12th year of a bull run by the end of this year,” Marcus Grubb, managing director for investment at the industry-funded WGC, told a news briefing.
Gold has a close negative correlation with the dollar, whose
strength makes commodities priced in the U.S. unit more expensive for holders of other currencies and curbs gold’s appeal as an alternative asset.
While gold has outperformed the euro so far this year - the single currency is down 3 percent versus the euro, while gold is up 1.5 percent - the dollar’s strength is weighing heavily on prices.
As the euro zone crisis unfolds, with shocks such as Greece dropping out of the common currency unit on the cards, investors are likely to rediscover the safe haven value of gold, Grubb said.
“From an overall macro prospective ... we think that there is a high likelihood that Greece may leave the euro and we believe the euro will not survive in its current structure,” Grubb told Reuters after the news conference.
Worries about the euro zone debt helped drive gold prices to a record high last year.
European central banks which together own about 10,000 tonnes of gold reserves were unlikely to sell their gold or use it as collateral to bail out any country because of legal commitments, risks of such operations and the relatively small amount of gold reserves compared to the debt pile, Grubb said.
Global gold demand was expected to be steady in the first quarter of this year, supported by investment demand which had offset weak demand from India, the world’s major gold jewellery consumer, Grubb said.
“The quarter looks like a steady one in terms of demand,” he said but declined to give precise figures ahead of a WGC quarterly demand trend report due to be released next week.
Gold jewellery demand in India was weaker in the first quarter of 2012 than in the same period of 2011 and likely to be subdued this year, hit by a slowdown of India’s economic growth, a series of fiscal tightening measures there over the past few months and a weakening rupee against the U.S. dollar which makes gold more expensive on the local market, he said.
That means China, which overtook India in terms of gold consumption in the last quarter of 2011 is likely to be top overall consumer in 2012, Grubb said, confirming WGC’s earlier forecast.
Central banks from emerging countries continued to be net buyers of gold “at a good rate” in the first quarter, while European and U.S. central banks were not selling, Grubb said.
Gold purchases by central banks were on track to reach about 400 tonnes this year as WGC forecast in February, he said.
Editing by James Jukwey