Inflation fears could push gold to $1,000

London: Gold is poised to climb back above $1,000 per ounce this year, as inflationary pressures and financial turmoil prompt investors to seek shelter in the metal used as a store of value.

But the caveat is gold's fortunes are traditionally strongly tied to the movement of the dollar and a significant turnaround in the weak US currency could limit its rally.

Gold hit $877.90/$878.90 an ounce at 1356 GMT, up from $866.60/$868.00 late in New York on Tuesday.

"There's a good chance that it may go back above $1,000 in the short-to medium-term," said Richard Davis, a London-based fund manager at BlackRock.

Record high oil prices, a soft dollar and turbulence in the banking sector sparked by the credit crunch pushed gold to a record high of $1,030.80 per ounce on March 17.

Since then the metal has lost around 15 per cent.

However inflationary pressures highlighted recently by the US Federal Reserve and European Central Bank will aid gold.

"We're headed for inflationary times and gold has always been a safe asset to protect your wealth against inflation." With oil prices at a record high above $135 and food prices surging to their peaks, fears of inflation is haunting investors more than ever.

US Federal Reserve chairman Ben Bernanke has said the latest surge in energy prices is adding to the dangers from inflation but the central bank would strongly resist rising inflationary expectations.

Speculation

His strong tone convinced more investors that rate hikes could come this year and triggered a rally in the dollar, which took the steam out of gold.

Some fund managers still betting on a weak dollar say there could be further fallouts from the credit crisis.

"We might have aftershocks or maybe another major eight Richter scale kind of event lies ahead and that's the sort of thing that tends to make people nervous," said John Hathaway, senior managing director of Tocqueville Asset Management.