Compared to previous cycles, gold has appreciated at a more measured and steady pace over the past nine years. Expect this to continue.

During the past few years we have seen a growing acceptance of gold as an asset class, driven by investment demand and central banks' net purchases. The recent change in central banks' attitudes can be viewed as confirmation that gold is being used as a hedge against currency risk and reserve management, which is key for its long-term valuation. For example, in late 2009, the Central Bank of India purchased 200 tonnes of the International Monetary Fund's gold. Central banks in China, South Korea and Taiwan are also considering increasing their gold reserves.

We anticipate demand from China to be another positive driver for gold in the years ahead. According to the World Gold Council, China accounted for approximately 11% of the world's gold demand in 2009 and this is expected to double in the next ten years. Recently, the Chinese Government relaxed the rules over its citizens owning physical precious metals. Furthermore, while China has been aggressively investing in its domestic gold mining industry, the country remains a net importer of gold.

In the past few months, there has been a heightened interest in gold from European investors who are seeking protection against the declining euro, caused by sovereign debt issues. In Germany and Austria, demand for gold coins has surged, as individuals flood local dealers to exchange their euros for bullion. In Abu Dhabi, demand is visible by the number of gold-dispensing ATMs that are appearing.

Despite the recent increase in demand, gold as a percentage of financial assets is at a fraction of previous levels when compared to previous peaks in 1969 and 1980.

Recently, gold has faced some volatility. This is due to the short-term strength of the US dollar compared to the euro, caused by Greece's sovereign debt concerns and anticipated instability in the rest of the PIIGS (Portugal, Ireland, Italy, Greece and Spain). The Greek saga and the recent downgrade of Spain have been the key causes of investors' concerns. These concerns can only be expected to increase if contagion spreads in the region, especially following the $1 trillion bailout in the eurozone to help support the euro.

Since the 1800s, the shortest gold bull cycle has been ten years. The current bull market for gold is only in its ninth year. We believe that, while it may be bumpy along the way, this will be an extended cycle because of heightened fiscal debt levels, conflicting stimulus easing measures and currency instability.

While we don't know the ramifications of current macroeconomic issues, one thing is certain: we haven't solved the major funding problems yet – we've just postponed them. As a result, volatility is likely to persist for some time. We believe the secular trend for gold remains positive, as concerns surrounding growing government debt levels, global geopolitical stability and currency debasement will translate into further investment demand.

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