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14/01/03
16:47
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VICENZA, Italy, Jan 13 (Reuters) - Pension funds should
raise their long-term holdings of gold to diversify portfolios
and protect investments from global economic malaise and a
softer dollar, a senior gold industry official said on Monday.
"It would make sense for gold to come back into play as a
portfolio diversifier for those funds," Simon Weeks, chairman of
the London Bullion Market Association (LBMA), said on the
sidelines of the gem and jewellery fair in Vicenza, northern
Italy.
Not only would this benefit the funds, it could also bring
steady gains in the gold price which would lure more investors.
"We need to see some longer term money coming into the
market from the pension funds," he told Reuters.
The LBMA is the representative body for the London bullion
market which is the hub of the gold industry's over-the-counter
precious metals trading.
Weeks said that demand for gold as a longer term investment
should increase amid continuing global economic weakness fuelled
by a large U.S. budget deficit, a weak dollar, and expectations
of low interest rates over a long period.
"The warning signs would be continuing weak currency
environment, continuing low interest rate environment and,
unfortunately, further falls in the stock market," said Weeks.
He forecast a sustained rise in gold prices if pension funds
gradually raised their longer term gold holdings from current
low levels to around 15 percent of their portfolios.
"People need a steady move in prices, as opposed to
volatility in the underlying price, and that will also attract
more investors," Weeks said.
Gold's price rally was put on hold in European trading on
Monday as lower oil prices, a slight recovery in the fragile
dollar and late gains on Wall Street on Friday encouraged fund
selling, traders and analysts said.
Spot gold was trading at $353.75/4.45 an ounce at 1607 GMT,
lower than the $354.30/5.05 last quoted in New York on Friday.
Asked for his near-term forecast for gold prices, Weeks
said: "Near-term we need to have a slight retracement in the
price. We need to perhaps move back towards the $325-330 an
ounce area. I think the market should build a solid base for
further gains later in the year."
"I think we are in for a period of sustainable high prices,"
he added.
Weeks said economic fragility, rather than the possibility
of war in Iraq, was the main driver of the gold market.
"The notification that war may happen has been in the price
for quite some time," he said.
"The main driver for price activity at the moment is the
economic situation around the world."
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