Inflation Fears May Drive Gold to Record High

gold bullion, gold barsGold prices could set new record highs above $1,030 an ounce in 2009 as investors flock to the precious metal as a hedge against future inflation and a weaker dollar, according to a leading fund manager. Investec Global Gold Fund’s portfolio manager Daniel Sacks said a combination of safe-haven buying of gold as an alternative to paper currencies, inflation, and a dearth of fresh mine supply in response to rising prices are set to boost bullion this year.

“We believe gold will continue to perform well in 2009 against most assets and, in U.S. dollar terms, should attempt a breach of the 2008 highs of $1,030 an ounce,” he said.

The precious metal hit that level in March last year as a sharp slip in the dollar fuelled hefty gains. Dollar weakness tends to push investors towards hard assets, such as gold.

“The price of gold is still just half of its prior peak in ‘real’ terms, even after the rally of the past eight years,” he said. “We see much more upside than downside risk for bullion.”

Sacks said a host of factors, including ongoing dollar devaluation, diversification of reserve currency holdings, fresh fund appetite for assets like commodities and inflation fears, could combine to support gold.

“In almost all but a global soft-landing scenario, gold is likely to rally, in our view,” he said. “With a global recovery unlikely to be smooth, the two main risks to most asset values are inflation and the U.S. dollar — both of which are decisively gold positive.”

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