Gold May Rise to $5,000 on Inflation, Schroder Says (Update1)

This is another investment idea worth exploring. This however will be more complicated than usual because of many factors are interacting - inflation expectations, switching from soft asset to hard asset, etc. BHC investment writes a great deal about it. Marc Faber advises to buy when it corrected back to $ 780 - $ 800 during process of de-leveraging. You can buy an index to save you all kind of headache: SPDR GOLD SHARES (formerly: StreetTracks Gold Shares) from SGX.

June 19 (Bloomberg) -- Gold prices may rise to $5,000 an ounce as investors seek to protect themselves against accelerating inflation, said Schroder Investment Management Ltd., which oversees $277 billion of assets globally.

``You could easily see for the next several years that prices rise not to $1,000 an ounce, but prices rise to $5,000 an ounce or beyond as inflation psychology becomes more and more embedded and people become desperate to have a source of value,'' said Christopher Wyke, London-based emerging market debt and commodities product manager at Schroder, which oversees about $10 billion of commodity assets.

Investors are turning to gold for protection as two-thirds of the world's population cope with inflation rates that are climbing to more than 10 percent, Wyke said. Cash and inflation- linked bonds are poor substitutes as low interest rates, coupled with surging inflation, erode the real value of assets, he said.

Bullion for immediate delivery was down 0.2 percent at $892.48 an ounce at 9:57 a.m. in Singapore, after gaining 3 percent in the past four days. Wyke didn't give a time frame for his gold prediction.

Demand for gold will also rise as central banks become net buyers for the first time in 20 years, driven by developing countries, he added. Last year, world production of gold sank to the lowest since 1937 as reserves are depleted and few new sources of gold have been found.