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Bullion's speculative trade near its end: World Gold Council

Tuesday, 6 Aug 2013 | 4:35 AM ET
Junko Kimura | Bloomberg | Getty Images

The exodus out of gold this year, triggered by heavy exchange traded fund (ETF) selling, may nearing its end, according to an executive at the World Gold Council (WGC), who expects prices to pick up towards the end of 2013.

"We feel that speculative money has largely come out of the gold market. We feel that gold is nearer the bottom than the top right now. You'll see a stronger market towards the end of the year, and into next year," Marcus Grubb, managing director of investment at the WGC told CNBC on Tuesday.

(Read More: The four reasons why hedge funds are selling gold)

Investors in gold ETFs have sold around 650 metric tons of bullion gold so far this year, driven by improving prospects for U.S. economy and expectations for a tighter monetary policy in the country. This is equivalent to the amount that rushed into the market eight months after the collapse of Lehman Brothers when investors were searching for a safe haven, he explained.

Contrary to what many believe, Grubb says that higher interest rates will not be negative for the precious metal.

"A lot of analysis shows if real rates stay between 0-4 percent, gold can return about 7-8 percent per annum or more. That's our point of difference with the longer term bear view of gold, even rising rates could be positive if real rates aren't too high," he said. Rising rates imply higher borrowing costs and are seen as negative for gold, which is an asset that does not pay interest or a dividend.

(Read More: Gold miners: we aren't in 'dire straits')

In addition, he argues that investors should not underestimate the support physical demand will provide to the gold market.

World Gold Council: China and India to boost gold
Marcus Grubb, Managing Director of Investment, World Gold Council says rising demand from India and China will underpin a recovery in the price of gold.

"A huge amount of demand coming from India and China has underpinned the market at this level," he said, adding that China's rebalancing towards a consumption-driven economy will be even more positive for gold demand.

(Read More: Why gold bugs may wish for a China hard landing)

A continued increase in gold demand out of the world's second largest economy, coupled with a decline in production and recycling this year – which is negative for supply – will put the market back in balance very quickly and effectively result in a medium term deficit, he said.

The world's largest gold producer Barrick Gold last week, for example, revealed that it was planning to either close or sell its costlier mines after reporting a net loss of $8.6 billion in the second quarter.

—By CNBC's Ansuya Harjani; Follow her on Twitter @ Ansuya_H

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