By Daniela Cambone of Kitco News
Montreal -- (Kitco News) Despite the European sovereign debt crisis having somewhat stabilized, the risks are still there and investors will continue to look to gold as a hedge, Juan Carlos Artigas, of the World Gold Council said Tuesday.

“The risks in the system still persist and that will continue to be important for the gold market,” said Artigas in an interview with Kitco News.

Artigas, the Investment Research Manager for the WGC said that gold serves as a diversifier in times of bonanza and recession. “Gold’s purpose is not solely to protect against risk,” he said.

Gold is also a hedge against the dollar, said Artigas. “In the shorter term the US dollar benefited from trade rules that were lingering due to the European sovereign debt crisis, in the longer run the outlook for the dollar is not necessarily the strongest. You can see that US budget deficit is quite large and that puts pressure on the dollar going forward,” he said.

In its second quarter report the WGC said that gold had one of its largest gains in euro terms, rising 23.1% over the quarter.

The report also said that in the same quarter, investors bought 273.8 tonnes of gold via exchange traded funds (ETFs).

Artigas said that some ETFs experienced some net outflows of circa 3 tonnes. “Over that same period you saw the price of gold go up 2%,” he said. “Now you can see that if someone is only paying attention to what is happening in the ETFs they would be puzzled because they are missing other parts of gold’s story.”

There are many drivers to the gold market said Artigas. “In different periods of time there are some factors that affect behavior in the gold market differently. It is important to keep track of these factors. Over the past year we have seen that central banks became net buyers of gold, so that was an important component of demand for gold,” said Artigas.

Another important factor is demand for jewelry, said Artigas. Global jewellery demand recovered in the first quarter, rising 43% to 470.7 tonnes, said the WGC report, though the rise is from weak 2009 levels. India, the world’s largest consumer of gold jewelry saw demand grow by 291% to 147.5 tonnes, however, this was also from a low base of 37.7 tonnes the previous year.

Artigas seemed optimistic that jewellery demand in India will pick up with the start of the festival season; however, it remains to be seen how demand will fair if gold prices remain high.

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