Safe-haven gold buying is 'offsetting deflation'

A leading financial industry figure has claimed today (November 24th) that gold is retaining its long-term appeal as safe-haven buying is showing no signs of abating.

Investment demand in the metal has been strong so far this year, with people buying gold initially as a hedge against inflation and the weakening dollar, with which it enjoys an inverse relationship.

Although gold prices have been volatile in the past two months and some commentators have claimed that deflation will affect its strength, HSBC chief commodity analyst James Steel has suggested that physical demand will continue to back it up.

He said: "It is possible that gold is benefiting from safe-haven buying, which could be offsetting the impact of rising deflationary pressures."

Mr. Steel's comments have been strongly corroborated by David Meger, a metals analyst at global futures brokers Alaron Trading, who believes that safe-haven buying is still as firm as ever.

He also added that the demand for investing in gold is obvious as there has been a surge of interest whenever gold prices have dropped towards the $700 per ounce mark.

"Gold is really starting to re-emerge as the safe-haven asset," he said. "The fact that gold is holding up well in the midst of the commodity decline shows some nice physical support.

"We have noticed very significant physical demand every time the market would test the lower $700 levels."

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