Dubai: Gold prices, which rallied sharply in recent weeks on sovereign risk concerns, may be vulnerable to a sharp correction when the fear factor dies down, Deutsche Bank's global head of metals warned.
Over the past two years, investors seeking a safe haven from the global economic uncertainty shifted their investments to physical and gold securities.
However, the precious metal is likely to lose its lustre when economic growth recovers and confidence grows in governments' ability to repay debt, said Raymond Key at an industry event in Dubai.
"In three or four years, the extent of the uncertainly in the market might decrease and this would lead to the dramatic downfall of gold investments," he said.
"Gold does not return any dividend like other assets, so if faith returns in the global economy we will start to see a move away from gold," he added.
Spot gold rallied nearly six per cent in April as concern over Greece's ability to deal with its debts sent investors flocking to bullion. On Tuesday it traded above $1,190 an ounce for the first time since December last year.
Persistent fears over the euro zone's fiscal health, which was recently sparked by Greece's sovereign debt problems, had kept gold in a "sweet spot", said Key.
"For the time being I think gold will remain strong, because there are no clear indications of government debt recovery," he said.
A German government source said Greece's capital requirements until 2012 are greater than the 110 billion euros included in a euro zone and IMF rescue package.
Looking forward, the prolonged dollar strength on the back of the resilient United States economy was likely to limit sustained gains in gold, said Richcomm Global Services senior analyst and trader Pradeep Unni, senior analyst and trader in Dubai.
The global jewellery industry is valued at approximately $146 billion of which the Gulf region represents around 10 per cent with a value of $14.5 billion, said Chandu Siroya, vice chairman of the Dubai Gold and Jewellery Group.