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Global Uncertainty Drives Demand For Gold


Demand for gold is expected to rise as a weak US dollar and persistent fears of a double dip recession weigh on investors. Despite falling slightly from historic highs earlier this year, the precious metal remains a safe and attractive investment. Analysts expect the price to stay strong for the rest of the year, thanks in part to accelerating demand from India and China.

After four weeks of consecutive gains, higher prices for gold don't appear to be denting demand.

With the price remaining steady above 12-hundred and 36 dollars an ounce, the amount investors are willing to pay is rising.

"We believe the price floor, if you will has moved upwards," said Marcus Grubb, a managing director at the World Gold Council.

One reason is that demand for the precious metal typically rises as the Indian Festival season gets underway. India is among the world's largest consumers of gold. But demand is rising in other parts of the world. Grubb notes buying is especially brisk when the price of gold fluctuates.

"What we're now seeing is if you see the gold price come back below 1200, 50 to 100 dollars below that, you see strong physical buying on a daily basis," Grubb said.

The World Gold Council expects demand to remain strong for the rest of the year, due in part to growing demand from China.

Beijing has recently moved to liberalize rules so citizens can buy gold. It is also allowing domestic banks to buy and sell gold to encourage more liquid trade. Some investors believe China's entry into the gold market could drive prices above 13-hundred dollars an ounce. But not everyone is tempted.

For investment manager Justin Stewart, gold is just another commodity. "Be rather wary of gold. Whilst of course it has certain attractions, I regard it really as no more than a financial teddy bear; you can cuddle it, you can stroke it, you can put it on your pillow next to you, but it doesn't do anything, it doesn't give you any yield. And so therefore, you are at the vagaries of demand," he said.

Despite the naysayers, gold remains an attractive commodity for people worried about inflation and the impact of increasing debt carried by the world's largest economies.

Central banks and monetary authorities are the biggest holders of the world's gold because of its ability to maintain its value.

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