>Gold to gain from weaker dollar, inflation fears (GOLD)

Sydney - Gold hasn't had the kind of gains many expected it to make despite a stream of negative news in recent weeks, but the metal is back in focus again as a reliable store of value, said senior industry analyst Ian McAvity.

McAvity who is the editor of "Deliberations on World Markets," a newsletter that tracks precious metals, currencies and global equity markets, has been tracking the metal for the past 35 years.

"Gold has protected investors very well from the deflationary crash in asset values that is leading to the global attempt at hyper-inflating to try and achieve a directional reversal," said McAvity.

Gold hit a record $1,032.35 a troy ounce in March last year, before the financial crisis reached fever pitch with the failure of Lehman Brothers in September 2008, followed by the U.S. government bailout of insurance giant AIG.

At 0543 GMT Monday, spot gold was trading around $952.00/oz, down 60 cents from the New York close.

"(Gold's) rise against all currencies over the past three years has only just begun in the big picture sense," McAvity said. "While people point to gold still being below the peak it hit a year ago, how many other financial assets are trading at a multiple of their price levels of three, five or ten years ago?"

Gold, seen as a safe-haven in troubled times and a hedge against inflation and dollar weakness, has played a key role in portfolio diversification in the past.

Even in the hot money days when stock markets saw record rallies, gold maintained a steady uptrend, and prices more than tripled from around $280/oz in 2002 to its $1,032.35/oz record.

Since then, the Dow Jones Industrial Average has plummeted to a 12 year low, oil has slumped from nearly $150 a barrel to around $50/bbl now, and copper in December sank to the lowest level since 2004.

Gold on the other gained about 3% during 2008, and topped $1,000/oz in February.

Now with competitive currency devaluation becoming a real threat, gold could well see the next wave of investor interest from those looking to protect their wealth.

Alongside the U.S. Federal Reserve's plans to pump $1 trillion into the system via buying Treasury bonds and mortgage securities to bolster the economy, the Bank of England has announced similar measures for quantitative easing.

The Swiss National Bank meanwhile has said it will buy corporate bonds and intervene in the foreign exchange market to prevent a deflationary spiral.

These moves have ignited long-term inflation risks, but have also drawn comparisons with Japan's "lost decade," with concerns that the Fed's measures may fail to kick start the economy, leading to a gold-negative deflationary environment.

But McAvity said competitive devaluation would likely enhance gold's position as the currency of choice for preservation of capital "until some credible rearrangement of major forex relationships emerges."

These prospects and even more severe doomsday scenarios have prompted many gold bugs to wheel out well-worn predictions of a gold rally to $2,000-$5,000/oz.

"Who knows? It would be the result of market forces trying to assess the purchasing power of a flood of paper, supported only by ever-changing rules," said McAvity. "An ounce of gold will still be an ounce of gold."

Source: COMMODITY CONTROL