Gold to reclaim record highs in 2012 - fund manager

A Palestinian man walks past a jewellery shop in the West Bank city of Jenin October 10, 2009.

SINGAPORE (Reuters) - Gold prices are expected to scale record highs next year as the asset's bullish fundamentals trump the current macroeconomic uncertainty that led to a recent selloff in the precious metal, says a commodities fund manager.

The slump in gold last month has resulted in a "wash-out" of speculators in favour of more stable long-term buyers like exchange-traded funds and central banks, said Diego Parilla, chief investment officer of new Singapore-based commodities hedge fund NARECO Advisors.

"There has been a transfer of length between short-term speculative buyers and long-term strategic holders, and we expect this trend to continue for years," Parillo said in an interview with Reuters.

"Central banks are looking to diversify from the once-upon-a-time risk-free government bonds, and gold is viewed as an attractive alternative. Not so much due to gold's own merits, but more by lack of a better choice."

Spot gold has risen by nearly 17 percent so far this year, having hit a record $1,920.20 an ounce in early September before diving by over $300. It has since rallied to trade at around $1,670.

Apart from central bank buying, gold prices are also supported by the sovereign debt crisis in Europe, a weak dollar and the Swiss franc's diminishing attractiveness as a safe haven after the government capped the currency's rise.

"Gold is experiencing a perfect storm. The bulls could not have asked for a more constructive chain of events. Whilst there is potentially more pain in the short term, we expect fundamentals to remain supportive and drive prices up over the medium to longer term," said Parilla.

Parilla founded NARECO Advisors in June to invest in commodity derivatives after spending two years as the Asian head of commodities at Bank of America Merrill Lynch.

He started his career at JP Morgan in London as a precious metals trader in 1998 and also spent four years at Goldman Sachs. He left BofA Merrill Lynch in March this year.

NARECO Advisors, which will launch its first fund later this month, is looking to raise $500 million in three years and will invest in a range of commodity derivatives, including energy, metals and agriculture.

AGS SUPER-CYCLE

Agricultural and food prices could also be at the early stages of a five-year bull run, similar to those experienced by oil and metals in recent years, fuelled by rising population and biofuel demand, Parilla said.

Food prices, which hit a record peak in February according to the United Nations' Food and Agriculture Organisation (FAO), are a warning that more production is needed to meet demand, he added.

"High energy prices, which are also experiencing super-cyclical pressures, are creating additional pressures via biofuel demand," said Parilla.

Food prices have fallen back in the last few months, due to investor concerns about a global economic slowdown which may undercut demand.

The actively-managed NARECO Commodity Low Vol Alpha fund aims to generate a 15 percent risk-adjusted return with a 10 percent volatility target.

(Editing by Michael Urquhart)