03 Sep 2010

The Future of the Eurozone and Gold

Yonghyup Oh / Daniel Gros / Cinzia Alcidi / Paul De Grauwe

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This report considers four short-term, alternative scenarios for the eurozone and analyses their possible implications for global economic trends and the gold market. Overall, the main findings suggest that in the near future, motives other than inflation hedging will be the main drivers of gold market dynamics. Growth in emerging economies, which are among the largest sources of gold demand, and financial market uncertainty, will be the most important ones. In particular, even if the worst scenario were to materialise and adverse global conditions could slow Asian growth, demand for gold from this region should not fall significantly. Moreover, even in the most optimistic scenario for the eurozone, global uncertainty will not evaporate easily. As a consequence, the gold price may continue to trend upwards for a period driven by investment demand from both the private sector and official investors.