World Gold Council – Price Outlook for Gold Quite Positive

According to the World Gold Council (WGC), the price outlook for gold is quite positive, as the precious metal has global appeal. The WGC stated that gold has good value as a hedge against both deflation and inflation. This statement from the WGC comes just after the industry realized that the chances of a third round of measures for quantitative easing are slim.

The economic data for the US improved in the 2012 Q1. Officials’ reluctance to support monetary stimulus was revealed in the minutes from the recent meeting held by the Fed for setting interest rates. They were not seen as positive for the precious metal, as loose monetary policy in the US can drive up the price of gold. This happens when dollar value drops because of the monetary policy. In the past few years, gold suffered because of this.

Price of Precious Metal Rises in 2012 Q1

Despite this, the precious metal rose to more than 8.5% in 2012 Q1, against the US currency. This was facilitated by other factors that allowed its price to increase, stated the WGC. One instance of the price of the precious metal rising was when an increase in oil prices generated fears of inflation, which in turn pushed up gold prices. This happened because traditionally, gold has acted as a hedge against fiat money’s falling buying power.

Another factor that has supported gold is the dual fear caused by the euro zone’s debt crisis that deflation and inflation will take place. According to the WGC, other than the US, there are other big gold buyers. Some of them are India and China, which are emerging markets.

Emerging Markets Largest Consumers of Precious Metal

An asset management company, GMO LLC, conducted a research that revealed that between 2000 and 2010, emerging markets were the largest consumers of the precious metal. However, in 2012 Q1, developments in India and China were too bearish for gold. The government in India announced duties on import and tax hikes on jewellery, and China reported weak economic data. Both factors raised doubts as to whether the demand from the two countries will be strong. Despite of this situation gold continued to show a positive trend in the first quarter.

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