The current dip in gold prices is temporary and demand for the precious metal is likely to rise in the medium term, Ronald-Peter Stoferle, international equities analyst at Erste Bank, wrote in a market note Wednesday.
"We would seize the current opportunity of general profit taking to buy as soon as the short-term downward trend is over," Stoferle wrote. "We regard the current consolidation as a good buying opportunity and envisage higher gold prices in the medium to long term."
Demand for gold, seen as the ultimate safe haven against inflation and a good instrument for diversification, is likely to continue rising, he said.
Total demand for gold is around 3,600 metric tons but global miners produce only around 2,450 metric tons annually, with the deficit compensated by central bank sales and recycling, said Stoferle, adding that the gap between demand and supply widened last year and was likely to continue to do so.
Robust jewelry demand as well as industrial demand might come down slightly in 2008, but the central banks in Russia, China and the Arabic region will want to decrease their dependence on dollars, he said.
"Even if only a small percentage of the (petro) dollars gets funneled into gold investments, this will trigger another price leap," Stoferle said.
Gold, which currently trades at around $889 an ounce, reached an all-time high of $1,034 in mid-March.