Published: Thursday, 1 Oct 2009 | 7:42 AM ET

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The gold price will set a new record high next year as the dollar tumbles and inflation is fuelled by government deficits and loose monetary policy around the world, Deutsche Bank said on Thursday.

Gold will move above $1,100 an ounce during 2010, above the record high of $1,030.80 an ounce hit in March 2008, and the dollar versus the euro will hit $1.60, a level last breached in July 2008.

"We are positioning for fresh highs in the gold price," the German bank said in a note, adding its gold price forecast for 2010 had been revised up more than 30 percent.

"We expect this will be driven by a resumption in dollar weakness as well as an increase in inflation volatility, which has historically been beneficial to gold prices." A lower dollar makes commodities cheaper for users of other currencies, while gold is used as a hedge against inflation, which erodes wealth.

Deutsche said central banks have been net sellers of gold since 1988, but it expected them to become net buyers.

AP

"Despite the prospect of IMF gold sales, we expect lower European central banks sales and emerging market central bank diversification," it said.

Also boosting gold will be "a more rigorous enforcement of position limits" by the U.S. Commodity Futures Trading Commission, which will enhance the appeal of owning physically backed exchange traded commodity funds (ETFs).

"Investor holdings in physically backed gold ETFs are in excess of 1,700 tonnes," the bank said. "This compares with Chinese central bank holdings of 1,054 tonnes."

Deutsche has also moved to a more bullish outlook for platinum and palladium -- used to make autocatalysts.

"We expect investment demand combined with a rebound in platinum jewellery demand in China and strong emerging market auto sales will offset weaker autocats demand in the developed markets," it said.

"With only a weak recovery in primary supply we expect this will lead to a deficit market in platinum over the next two years and a declining surplus market in palladium over the same period," it said.

The bank has also revised up forecasts for prices of industrial metals such as aluminium used in transport and packaging, and copper used in power and construction.

"Global apparent demand remains very strong for metals, supported by considerable re-stocking in China," it said. "We expect more moderate re-stocking from the advanced economies over the next quarter, which should lend support to the complex even as Chinese import growth decelerates."

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