Investment demand will continue to buoy gold prices in 2011
The price of gold has been mostly driven by investment demand in recent months. This is mainly reflected by the increasing quantities of gold held by exchange-traded funds (ETFs), which physically hold the yellow metal. A gradual increase in ETF gold holdings is also expected in 2011. As long as real yields remain low, gold investments should continue to remain attractive. The investment demand is also expected to grow stronger due to the unconventional measures adopted by the global central banks which could in turn inflame the inflation expectations of some investors in the medium to longer term. In addition, the current debate about a potential currency war is also fanning concerns about the value of paper currencies.