INTERNATIONAL. Central banks may be justified in increasing their gold holdings to 40%-50% of their reserves, a senior executive of the industry-funded World Gold Council said on Thursday.

'Central banks are justified in having high gold weightings. They are justified in having a 40%-50% weighting in gold,' Marcus Grubb, WGC's managing director of investment, research and marketing told delegates today at a conference organised by ETF Securities.

He said the current macroeconomic environment supported gold buying: 'It is not only about the dollar, not only about diversification, but also about future inflation,' he said.

There were signs that a number of Asian central banks were adding to their gold reserves, he added.

In 2008, Gold Investment demand accounted for 30% of overall gold demand, while jewellery demand contributed approximately 58% of the total.

Grubb explained that concerns over the global economy and a desire to diversify look set to reverse that trend.

Speaking last month at another ETF securities seminar in London, he said: "The structure of the gold market is changing. In the first quarter I think investment demand could be higher than 30%."

"ETF investment is in its infancy, and so is gold investment," he said. "Most allocations of gold are zero."

"You would only need a small shift in allocations to gold in segments of private and institutional wealth where they're not currently invested to have a major impact, when mining supply is only 2,400 tonnes a year."

"People are worried about the financial system, they're worried about credit, the issuance of paper, the bailouts... Many investors we talk to think that is going to create inflationary pressure in the world economy in the future," he said.

"You need an inflation hedge in your portfolio, and that is causing people to buy gold."

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