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Gold investors fear that the scaling back of U.S. monetary stimulus will spark a surge in borrowing costs, making gold - which pays no dividend or interest - particularly sensitive to rising interest rates.
But, with emerging markets accounting for about three-quarters of gold demand yearly, higher U.S. interest rates may have less influence on gold prices than expected.
The price of gold has room to increase even if U.S. interest rates keep rising as an improving economy should boost demand. Between June2003 and May 2006, $GOLD posted a cumulative return of almost 100 percent while the $TNX rose 200 basis points.
During periods of rising U.S. interest rates, gold's relative low volatility also makes it a desirable asset in an investment portfolio. According to a recent World Gold Council trade group report, the price of gold has room to increase even if U.S. interest rates keep rising as an improving economy should boost demand by jewelers and manufacturers. REPORT