RE:RE:Cash conservation May take a few more months yet for us to get the real direction of POG .. IMO
TONY EASTLEY: Gold is often described as a safe financial haven; the precious metal that everyone wants when times get tough.
And people certainly took that to heart in recent times and gold prices soared. But this year the price of gold has slumped by one-third to below $US1,300 an ounce. Money was pulled out of gold and put into stocks.
But the body representing the global gold industry says the recovery of the North American economy in particular has been overstated and the price of precious metal is likely to rise again.
Reporter Sue Lannin spoke to Marcus Grubb, the head of investment at the World Gold Council, at the Diggers and Dealers mining conference in Kalgoorlie.
SUE LANNIN: Where do you see the gold price going?
MARCUS GRUBB: The World Gold Council can't give gold price forecasts because of our regulatory status in the United States. But I think our view of the market is that we are now close to a bottom, much closer to a bottom than a top.
So I think overall we see it more that the market balance between physical demand and supply is being re-established very quickly, probably before the end of this year that will be done.
So you have very strong demand from Asia, central banks, long-term demand kicking back in with mine production probably likely to fall rather than rise. So because of that we're pretty bullish on gold in the medium term.
SUE LANNIN: What happens though if the US central bank, the Federal Reserve, does start to withdraw stimulus from the US economy? That will push up the US dollar and push down the price of gold won't it?
MARCUS GRUBB: Certainly a stronger dollar is a headwind for gold. I mean that's a well known fact in the gold market. It's negatively correlated with the trade weighted US dollar.
However we feel that scenario is by no means a certainty. And as we were hearing from another speaker at Diggers and Dealers this week, the outlook for the US economy is not nearly as rosy as some observers would currently claim. We also think that the Federal Reserve may not taper as early as September or even December.
SUE LANNIN: Do investors still see gold as a safe haven?
MARCUS GRUBB: Undoubtedly they do, yes. And I think the interesting thing though is throughout this cycle with the credit crunch and the recovery and where we are today, you've seen gold move around.
It can be a safe haven and a store of value, so it effectively reacts as a risk off asset. It can also though act as a risk on asset. So if people get more bullish, if investors become more positive about equities, provided interest rates don't rise too rapidly, if there is a little bit of inflation, then gold can rally at the same time as equity markets.
It hedges you in both scenarios. Once it is clear, once you're through the uncertainty, and you know which way markets are generally going, gold then still acts as a hedging asset one way or the other and that's one of its great strengths.
TONY EASTLEY: Marcus Grubb, investment director at the World Gold Council, speaking to resources reporter Sue Lannin.