Investment demand for gold continues to increase, as central banks become net buyers of the commodity, which is forecasted to top $1,600 an ounce by 2012, says Jorge Beristain, an analyst at Deutsche Bank Securities.
“What we’re seeing now is emerging-market central banks stepping in as new buyers of gold for the first time, while developed-market central banks have stopped selling,” Beristain said. “So we’re seeing central banks going from a net supply position to a net demand position, and that could be termed as additional investment demand as well, and one of a more long-term nature.”
China, Brazil and Russia each hold less than 10% of their assets in gold, compared to two-thirds by central banks in developed markets, Beristain says. As these markets develop, gold demand is predicted to increase further.
“As emerging market countries become wealthier both from a balance of trade and simply continuing to maintain a relative similar percentage of gold, that could be a driver for increased gold demand,” Beristain said. “But additionally, we think that these central banks are re-evaluating how much gold they want to hold as a percentage of their overall assets, which could be a further driver.”