ANALYSIS-Gold bulls see safe haven in economic straits

NEW YORK, Sept 10 - Gold broke through the $1,000-an-ounce barrier this week, and many on Wall Street believe it can keep going higher.

Traditionally, investors have viewed gold as a "safe haven" in times of economic uncertainty, and analysts have no reason to believe it is any different in the current recession.

Despite signs that the economy is clawing its way back, the dollar remains weak and inflation fears are rife, and investors are looking for reliable places to put their money.

"One of the reasons why the gold rally has been so strong is because it is not just an inflation story, it is not just a dollar story," said Jeffrey Christian, managing director of New York-based commodities consulting firm CPM Group.

"It is a wide range of economic, financial and political issues that are causing people discomfort around the world. I think there are things that are going to increase investors' anxiety over the next six months, and that will be reflected in stronger gold prices."

Jeffrey Nichols, managing director of American Precious Metals Advisors, said that with banks cautious about lending and businesses unable to borrow, it is hard to see the U.S. economy resuming a healthy, durable expansion.

"The Fed will remain under pressure to maintain a stimulative monetary policy with low real interest rates for some time. That's bad news for the dollar and inflation but music to the ears of gold bulls," he said in comments at a conference in India this week.

Analysts say gold's performance in the last 12 months -- averaging around $900 an ounce, with a range of $700 to $1,000 -- was due to several factors.

At first there was fear the financial system was going to collapse -- an argument for buying gold, they said. When the collapse did not happen, there were fears of inflation from government-run stimulus packages, prompting a need for gold as a protection.

Then private-sector spending was replaced by government spending, fanning inflation fears and bringing another surge of safe-haven buying.

Nichols told Reuters he expects gold to hit a new all-time high in the closing months of the year, "possibly at $1,200 or $1,300."

The record high is $1,030.80 an ounce, set in March 2008. A year ago gold was selling for around $800. It stood at $990 on Thursday.

George Milling-Stanley, managing director of the World Gold Council trade group, sees gold moving up but would not say how much.

"Gold has a tendency to keep its value when everything else is going down," he said. "A safe haven always makes sense, irrespective of what is happening in the economy.

"It's not something you go and buy in troubled times. The time to buy home insurance is before your house burns down."

Milling-Stanley said demand for gold jewelry has slipped amid the recession and is not the dominant force it has been for the last 40 years. But the slack has been taken up by higher investment demand, especially from exchange-traded funds, which make it easier to buy gold, he said.

"The outlook for the dollar is for a downtrend, and the outlook for inflation looks tougher down the road, while for the economy, recovery is not just around the corner," Milling-Stanley said.

"Every properly balanced portfolio of investments should have a small portion of gold."