Developing countries' appetite for gold to grow

A STUDY linking gold demand to the money supply today forecasts continued growth in the appetite for the precious metal in developing country markets.

This demand will be concentrated on the more prosperous areas, such as Saudi Arabia, India and Thailand, but it will also be apparent in countries where gold will be valued as an inflation hedge, such as China, Cambodia, Vietnam, Kuwait and Iran.

However, the study says that growth in jewellery and investment demand in the developed world will be dampened by low real income growth and relative stability.

Published by the World Gold Council, the study traces the links between gold and the money supply, mainly through studies of a number of developed countries between 1980 and 1992.

It concludes that the central banks of developed countries are unlikely to sell gold in the foreseeable future. This has been a fear overhanging the markets.

But central banks in China, Taiwan, India and the Philippines may buy. There is also expected to be growing investment demand for gold in the countries of the former Soviet Union until the paper rouble is stabilised.