Underlying physical demand 'will keep gold strong'

A leading financial institution has suggested today (November 13th) that the gold price may not fall dramatically over the coming months as it will be sustained by robust demand around the globe.

Investment bank Fairfax has predicted that if the yellow metal dips below the $700 per ounce mark it may continue to fall as investors liquidate into "an already weakening market", according to Reuters.

However, HSBC revealed in a note that while gold prices have undoubtedly been affected by coordinated central bank action to resuscitate markets, they could still go higher in the coming months.

The news provider quotes one section of the note as reading: "Credit market developments continue to weigh on gold prices, we believe, although the evidence is not clear cut.

"An important argument for higher gold prices is strong underlying physical demand for gold globally, most notably in India, the Middle East, and China."

Such a view would be backed up by the fact that gold investment in China was recorded as 38.4 tonnes for the first nine months of 2008, compared to 24 tonnes for the equivalent period last year.

And although the dollar has not slipped as far as some commentators predicted, fears over the future of the economy will see gold buying remain popular, according to Calyon analyst Robin Bahr.

"Safe-haven buying will continue to underpin the gold price," he told Reuters.

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