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Sunday, May 1, 2011

WGC Report: Q1 Gold Prices Reach New Heights

Photo by Anthony DeMarco of the Jewelry News Network

The World Gold Council recently released a report that was behind the times the moment it was publicized. But it does reaffirm the notion that investment demand in gold is pushing the price to levels that were unheard of just months ago.

Against a backdrop of uncertain global markets and a rising price, gold remained one of the least volatile commodities in the wider commodities mix, with average annualized volatility of only 13 percent, down from its historical 20 year average of 15.8 percent, the WGC said Wednesday in its first quarter 2011 Gold Investment Digest. Top-line findings show that positive investor sentiment towards gold and greater confidence in the timing of jewelry purchases in China and India prompted gold to reach new all-time highs in early April—and ultimately leading it to breach the $1,500 per ton mark.

While the report didn’t discuss the ramifications of the higher prices to the U.S. jewelry industry, the price of gold is now reaching a level that will force jewelry manufacturers and designers into making some difficult decisions.

“Gold's performance in Q1 2011 was characterized by continued concerns over the global economy, which led investors to become increasingly aware of gold's qualities as a preserver of wealth,” said Juan Carlos Artigas, WGC Investment Research Manager. “Our intelligence indicates that purchasing confidence in key jewelry markets, notably India and China, increased during the period, as price volatility declined and the dollar weakened against local currencies, resulting in a more measured price increase.”

A key trend noted in the Gold Investment Digest is the growing concern over global inflation, with comments by the U.S. Federal Reserve signaling an extended period of low rates serving to increase inflation expectations in the US. While inflation in countries such as India and China appears to have subsided to a degree, it still remains high. Moreover the threat of food price inflation is a growing concern for consumers around the world. In this environment, gold provides an alternative to hedge this exposure in a way that is not easily replicated by other assets.

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