The asset manager argues in an investment note that this year’s increase in mine production of just 4 per cent should at least put a floor under the gold price.

Many commentators predict that gold, which currently trades at just over $1,800 an ounce, will climb over $2,000 before the end of the year. It hit $1,900 an ounce on 22 August, before falling to almost $1,750 in the following days.

Central banks in emerging markets will play a key role in the market, ING says. Despite having bought more gold for diversification purposes, there is room for yet more as their holdings are considerably below the average of developed central banks, standing at about 11 per cent. The firm pointed out that India holds 8.7 per cent of its reserves in gold and China only 1.6 per cent.

“Despite the positive influence from emerging markets on the price of gold, it could be a different picture if the sovereign crisis escalates,” said Koen Straetmans, senior strategist, real estate and commodities, ING Investment Management. 

“It has been rumoured that the US Treasury might sell part of its gold reserves in order to fund its budget gap,” Straetmans said. “The US Treasury, including the Fed, holds over 8,000 tonnes of gold. This compares to around 4,000 tonnes of annual supply. Peripheral eurozone countries might also be tempted to do the same. This action or the threat of it happening could prove a counterweight against safe haven flows to gold in times of severe sovereign stress.”

The winds of change

What is more, research by ING suggests that the sub-prime crisis of the late 2000s seems to have changed the relationship between the US dollar and gold, and that the correlation between them has fallen nearly to zero since March 2009. Before the crisis, from 2000 till mid-2008, the correlation was about 0.9 .

“Periods of severe stress may reverse the long-term relationship between gold and the US dollar,” said Straetmans. “The precious metal may prove a favourable hedge under these circumstances, in particular for euro-based investors.” 

ING also said it is underweight in commodities at the moment, but overweight precious metals.