September 29, 2008 / 5:38 AM / 9 years ago

BarCap sees "perfect storm" for fresh gold spike

KYOTO, Japan, Sept 29 (Reuters) - A near “perfect storm” has reformed in the gold market that should drive bullion to new record highs within the next six months, fuelled by a mix of anxious uncertainty and a weaker dollar outlook, a Barclays Capital official said on Monday.

While gold prices may weaken briefly if other markets rally in relief once U.S. legislators gave the greenlight to a $700 billion bailout of the financial system, a reconsideration of gold’s merits should propel it beyond the March record of $1,030.80 an ounce, says Jonathan Spall, a director in BarCap’s commodities division.

“I think we should make new highs .. .within the next six months, I would’ve thought,” he told journalists at the London Bullion Market Association’s annual conference in Kyoto. “We should be in a perfect storm for gold.”

The U.S. and European governments have stepped in this month to bail out major banks and financial institutions whose near collapse under the weight of toxic debt triggered the worst crisis in decades and threatened to wreck the world economy. “I was always very sceptical of the argument of gold as a safe haven, but that has changed dramatically for me and for others -- now it’s financial institutions themselves that are under threat,” he said.

Spall, who liaises with central banks and with hedge funds in both precious and base metals markets, also said he saw indications that hedge funds were increasingly interested in moving into the gold market.

Gold prices spiked earlier this month from an 11-month low of around $736 to a high just above $900 an ounce, but have stalled there amid a rush for pure cash among some financial players.

That could change as worried investors seek out hard assets fearing a falling dollar and inflationary pressures.

“Suddenly people who have worked for years in the gold market but never invested are asking how they get in, whether ETFs or something else,” he said. (Reporting by Jonathan Leff; Editing by Ben Tan)

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