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The gold price has risen spectacularly in the past year but it is not clear that this buoyancy can be maintained, particularly as investment demand has far exceeded any increase in purchases by manufacturers.

Investors rush to the gold market

Prudent investors often hold a proportion of their portfolios in commodities for the sake of diversity. Some buy when they expect inflation to rise; others dip in occasionally, resorting to certain of these markets as safe havens when equity and bond markets are on the slide.

But the sharp rise in the gold price over the past 12 months may be pointing to a broader change in sentiment among investors.

Last month - in marked contrast to the world's slumping equities indices - gold broke through $370/oz. Twelve months earlier, it was nearer $270/oz. At this rate, it may even rid itself of its image as an unpredictable and esoteric investment.

Interest in bullion is now so high that banks are working on new products to tempt mainstream institutional and retail investors. The most innovative of these is likely to be a bullion-backed exchange-traded fund, to be listed on several exchanges worldwide. The World Gold Council, along with HSBC and other banks, is working on such an instrument.

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