India, China inflation driving gold boom

One of the oft-cited reasons for gold's strong rally this year has been investor concern over the European sovereign debt crisis and fears of renewed global recession, but this argument doesn't stack up.

Demand by what could be termed professional investors has been largely unchanged, as shown by holdings in exchange traded funds and futures contracts.

The real demand growth for gold has largely come from consumers in China and India and from central banks.

It's impossible to know exactly why consumers in Asia have been buying gold, but I suspect that it has very little to do with concerns that Greece may default on its national debt, sparking another banking crisis.

More likely, Chinese and Indian buyers of gold are concerned about the prevailing high inflation in their countries and are seeking a hedge.

Image: The logo of a gold jewellery shop is seen in Bucharest on August 19, 2011.

Text: Clyde Russell, Reuters

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