gold comments from bullion association - interview

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    VICENZA, Italy, Jan 13 (Reuters) - Pension funds should

    raise their long-term holdings of gold to diversify portfolios

    and protect investments from global economic malaise and a

    softer dollar, a senior gold industry official said on Monday.

    "It would make sense for gold to come back into play as a

    portfolio diversifier for those funds," Simon Weeks, chairman of

    the London Bullion Market Association (LBMA), said on the

    sidelines of the gem and jewellery fair in Vicenza, northern


    Not only would this benefit the funds, it could also bring

    steady gains in the gold price which would lure more investors.

    "We need to see some longer term money coming into the

    market from the pension funds," he told Reuters.

    The LBMA is the representative body for the London bullion

    market which is the hub of the gold industry's over-the-counter

    precious metals trading.

    Weeks said that demand for gold as a longer term investment

    should increase amid continuing global economic weakness fuelled

    by a large U.S. budget deficit, a weak dollar, and expectations

    of low interest rates over a long period.

    "The warning signs would be continuing weak currency

    environment, continuing low interest rate environment and,

    unfortunately, further falls in the stock market," said Weeks.

    He forecast a sustained rise in gold prices if pension funds

    gradually raised their longer term gold holdings from current

    low levels to around 15 percent of their portfolios.

    "People need a steady move in prices, as opposed to

    volatility in the underlying price, and that will also attract

    more investors," Weeks said.

    Gold's price rally was put on hold in European trading on

    Monday as lower oil prices, a slight recovery in the fragile

    dollar and late gains on Wall Street on Friday encouraged fund

    selling, traders and analysts said.

    Spot gold was trading at $353.75/4.45 an ounce at 1607 GMT,

    lower than the $354.30/5.05 last quoted in New York on Friday.

    Asked for his near-term forecast for gold prices, Weeks

    said: "Near-term we need to have a slight retracement in the

    price. We need to perhaps move back towards the $325-330 an

    ounce area. I think the market should build a solid base for

    further gains later in the year."

    "I think we are in for a period of sustainable high prices,"

    he added.

    Weeks said economic fragility, rather than the possibility

    of war in Iraq, was the main driver of the gold market.

    "The notification that war may happen has been in the price

    for quite some time," he said.

    "The main driver for price activity at the moment is the

    economic situation around the world."
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