Gold on the rise as governments print money: experts

Gold has confounded expectations by comfortably consolidating above $1,000 an ounce, and traditional buyers in the jewellery market are facing the reality that higher prices are here to stay.

The prices of gold may rise to a record $2,000 an ounce in the next three years as investors hedge against possibly massive inflation sparked by governments printing money, according to Superfund Financial Singapore Pte's managing director Aaron Smith.

"In the next few years, after the deflation cycle, we'll see massive inflation," Smith said in an interview. "Soon, when you go to buy a cup of coffee, you'll pay $20 or $30 because the dollar won't be worth anything."
 
The company's Superfund Green Gold A Fund, which has more than doubled since its inception in 2005, has lost 15.6 per cent this year because of higher volatility, said Smith, who joined in 2002. Gold rose to an all-time high this month as governments, including the US, boosted debt to combat the global recession.

"When the US dollar crashes, all the paper currencies have to crash, otherwise if their currencies are too strong, their economies will be weak," said Smith, who issued similar gold forecasts in May and earlier this month. "Another excellent buying opportunity for investors is silver."

Smith joins investors, including Shayne McGuire, director of global research at the Teacher Retirement System of Texas, and Jim Rogers in forecasting higher gold prices. Pension funds will increase gold holdings as currencies decline, McGuire says.

Superfund, founded in 1995 and backed by $1.6 billion in assets, specialises in so-called managed futures, using its own trading system to generate buy and sell calls on stock, bond, currency and commodity futures. Still, the company's flagship Superfund A, which gained 35.4 per cent last year, has lost 24 per cent this year, Smith said.

The ratio of silver to gold, currently at 62.35, will be "cut in half" in the next three to five years as millions of people in South Asia and China buy the metal as an alternative because they can no longer afford gold, Smith said. Silver has soared 46 per cent this year to $16.65 an ounce.