Kingsgate Consolidated (ASX: KCN) Chief Executive Gavin Thomas is perplexed by the continuous fall in gold prices despite the high demand for the yellow metal. He opined that the decline by prices by about 16 per cent since September 2011 may be caused by the paper market, including the derivative gold futures markets.

"Of course it is a worry, I am at a loss to say why gold isn't moving up more strongly but we cannot produce enough gold for the physical market," AAP quoted Mr Thomas.

"China are buying, India are buying, everybody is buying and producers are spending money on exploration and we're not finding any new gold," he pointed out.

A report by The Market Oracle estimates that the largest 110 central banks have 16 per cent of their reserves as gold and their pace of accumulation is apparently growing. The FDIC has proposed to change rules and allow gold bullion to be recognised as a Tier I asset class with zero per cent risk weighing, while the Bank of International Settlements, the central bank for central banks, is also studying the reclassification of gold as risk-free assets under the BIS Basel III framework.

Mr Thomas stressed that gold is a far safer investment than currency or interest rates.

Kingsgate, Australia's fifth-largest gold producer, reported on Tuesday an 85 per cent boost in its gold production the past 12 months due to higher output from its open put Chatree mine in Thailand. Total output was almost 209,000 ounces of gold while average cash cost was $720 per ounce.

He said Kingsgate is expected to begin underground mining in Thailand while it expects to start production in 2014 at its Chilean silver and gold project. However, Mr Thomas admitted that its Challenger mine in South Australia remains a challenge for the firm because of its underperformance since its acquisition for $376 million in late 2010.

He explained the Challenger mine's underperformance to problems with equipment availability and a gearbox failure in the June quarter. For that quarter, Challenger produced only 61,835 ounces of gold, which is just a slight increase from the March quarter output of 60,614 ounces.

The Market Oracle said the current weakness of gold price is a good period to accumulate the safe haven metal. But it said that if the paper manipulators would push gold price below support, it would be short lived and traders should expect a quick rebound to current prices at a $1,575 per ounce.

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