Demand for gold increased by 64% in 2008, with most investors preferring physical gold such as bars or coins, according to the World Gold Council (WGC).
A report released by Lipper Fund Market Information (FMI) says that European investors sought to diversify assets away from the collapsing financials sector and hedge against the threat of inflation, which may return because of quantitative easing.
“The most striking trend has been the reawakening of investor interest in holding physical gold, with demand for bars and coins rising 87% last year according to the WGC. The most dramatic surge was in Europe, where bar and coin demand increased from just nine tonnes in the fourth quarter of 2007 to 114 tonnes in same quarter in 2008, a 1,170% increase,” says the report.
Demand has also grown this year and the gold price broke the $1,000 an ounce mark in mid-February. Lipper says Citigroup has forecast it could reach $2,000 by the summer.
The report says: “Around 60% of gold is sold for jewellery, mainly in Asia, but when the gold price is high these sales diminish. Recently demand has been driven by investors. The price is being underpinned by weak supply, following a period since 2001 when mining output has declined due to lack of exploration. Unless a central bank starts offloading its gold, this situation is unlikely to change in the near future.”
There was a record increase in the number of gold investment funds launched to European investors in 2008, with 11 new vehicles. Hansainvest launched Germany’s first physical gold fund this year.
Gold fund sales totalled €2 billion (£1.78 billion) in 2008 against €166m in 2007.
Fall in production helps to push price of gold to $900