The announcement by 15 European central banks and the restructuring of International Monetary Fund's (IMF) gold sales plan was a reiteration of the view that the fundamentals of gold have always been and will be strong.

While the Federal Reserve Bank of USA, the Bank of Japan and the Bank for International Settlements (BIS) have not formally joined in the statement of the 15 European banks, the market expects that they will abide by terms of agreements. The IMF too has confirmed that it intends to revalue 14 million tonne ounce of its gold to help in the finance of enhanced debt relief. This replaces, the earlier plan to sell gold, WGC said in a statement.

According to Schneebeli, consumers have seen that their confidence in gold has not been misplaced. "Buyers in the Middle East and the Indian sub-continent were mature buyers and had reacted properly when the price was low. This is clearly reflected by the good second quarter demand in India and the Gulf countries," Schneebeli.

Lastly, the announcement of the freeze on gold leasing is equally or perhaps even more important, said WGC. Together with the fact that neither USA nor the IMF are able to lend gold, this means that the supply of additional gold for lending wil be very substantially reduced in the next five years. Since most gold that is lent is sold on the spot market by the borrower, this will reduce gold supply in coming years, apart from reducing the potential for short selling.

Gold prices surged after 15 European central banks announced in Washington 10 days ago, of the annual gold sale limit of 400 tonne for the next five years. In London, gold price had touched 20-year lows at around $252.50 per ounce during mid-July this year.

However, thereafter price jumped to $323 per ounce on September 29, despite sales by the United Kingdom's Treasury in early September. On Wednesday, gold prices steadied as the market sought to consolidate some of the previous day's wild price swings, trading in a $10 trading range of $318/$328 an ounce.