DUBAI - The increase of gold prices by 4.98 percent last week was mostly triggered by investors who covered their short positions, said Gerhard Schubert, head of commodities at bank Emirates NBD, on Saturday.

The gold prices rise by $61 to 1,285 dollars was no signal for a reversal at all, said Schubert, "as the price action seen can easily be described as a short covering rally in a bear market environment." Regarding interest in physical gold buying, Schubert said in his weekly commentary on precious metals that it had still been strong, especially in the early days of last week, "with interest waning in the wake of the rising prices."

However, the outflow from exchange traded funds (ETF) with gold as an underlying continued at stop-watch speed. According to British firm ETF Securities, investors pulled some $18.5 billion out of gold ETFs in the second quarter alone.

Chinese imports are still going strong but the turnover of the Shanghai Gold and Futures Exchange plummeted at the end of last week, said Emirates NBD's Schubert.

The expert added that the gold market had to rely on a still accommodating interest rate scenario for the medium to longer term (1 to 2 years), "in order to generate enough fresh interest to sustain current prices and look potentially towards higher prices. " Schubert's opinion is based on United States federal reserve chairman Ben Bernanke's recent comments that the economic basis for a reduction in Quantitative Easing (QE) have not been met yet and that a reduction in QE would not automatically mean higher interest rates. Earlier in the week, the International Monetary Fund reduced its growth outlook for the global economy to 3.1 percent from 3.3 percent.

The trend that investors act more and more risk oriented and prefer stock markets over commodities undermined the weak outlook for gold, said Schubert, who added that gold producers in South Africa cut in their own flesh. "The major centralized wage negotiations for the gold mining industry in South Africa are under way with the highest ever demands on record, in an industry plagued by rapidly falling prices."

The gold price in Hong Kong went up HK$108 to open at HK$12,030 per tael on Monday, according to the Chinese Gold and Silver Exchange Society.

The price is equivalent to $1,301.32 a troy ounce, up $11.68 at the latest exchange rate of $1 against HK$7.76.