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

By Bei Hu

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.

New Fund

Wyke was speaking at a press conference in Hong Kong today to market the Schroder Alternative Solutions Gold and Metals Fund, the first commodity fund authorized for sale to individuals in the city that invests primarily in derivatives, including futures, warrants, swaps and options. Robert Howell and Paula Bujia will manage the fund.

Gold may account for about 40 percent of the fund's assets, based on a ``model'' fund used to simulate returns, said Wyke. The fund would also buy securities linked to metals including aluminum, copper, iron ore, zinc and uranium.

The limited amount of gold available, relative to the size of the global capital markets, means a small shift in investments may lead to significant price changes for the metal, Wyke said. Total gold above ground is worth about $4.8 trillion, compared with global stock and bond markets worth $135.2 trillion.

UBS AG, Hang Seng Bank Ltd., KBC Groep NV and Lehman Brothers Holdings Inc. are among firms that manage commodity funds in the city, according to the Hong Kong Securities and Futures Commission. Bank of East Asia Ltd. in February started a fund that buys shares of companies that produce materials and energy.

To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net