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27 Feb, 2009 09:09

Gold to remain in demand despite weekly slide from $1000 ounce

After edging up to an 11-month high of over $1006 an ounce a week ago, the price of gold has slid down to under $943 for April delivery.

A rally in European stocks, coupled with gains by the U.S. dollar have hit the investment appeal of gold this week after it crossed the $1000 an ounce mark last Friday.

But Eugene Belin, FICC Head, Citi Russia, CIS and Israel says demand for the physical product remains strong – and that's likely to drive prices up again.

“People are generally worried about inflation that might come down the road with the central banks very busy printing their own currencies to combat the financial and economic crisis. It will be a very difficult balancing act for them to know when to take this liquidity away.”

Global currencies have been particularly volatile in recent months. Ryan Dodd, Partner at Specialised Asset Management, says this adds to the allure of gold

“When you have dramatic moves in currencies – 30%, 40%, 50% in a matter of months if not less, that's when you see people turn to gold.”

Dodd also notes that falling production costs, coupled with robust demand offer a unique opportunity for producers.

“Now, with oil below $40 a barrel, chemical agents low, and the cost of energy, electricity and labor also falling, they're making quite a lot of money, their profits are expanding quite a bit.”

And as the world's central banks continue to implement measures to boost liquidity, investors may take advantage of lower gold prices to diversify assets.