The long-term rising trend of gold may be nearing an end as increasing unemployment and tighter bank lending push down asset prices, the chief executive officer of research company GFMS Ltd. said.
"I'm convinced that we are not too far away from a fundamental turning point in the gold market," Paul Walker said in an interview in Tokyo.
"My personal view is that the downside risks in the next two to three years are going to increase."
Walker joined the London-based company, which produces an annual market survey, in 1995.
Gold has rallied 8.7 percent this year, heading for a ninth annual gain, on demand for an inflation hedge and a currency alternative after central banks in the US, Japan and Europe cut interest rates and boosted liquidity by purchasing government and corporate debt.
Investor Marc Faber said last month he was still buying gold and forecast the US economy would enter hyperinflation.
"My personal view is that asset-price deflation and sluggish economic growth will prevail for the next year and a half," Walker said Wednesday.
"Under that scenario, gold's investment value starts to look far less interesting."
Gold for immediate delivery rose 0.5 percent to US$959.16 an ounce at 1:50 p.m. Tokyo time. The metal reached a record $1,032.70 an ounce on March 17, 2008, a four-fold gain from a 20-year low of $251.95 in August 1999.
In 2010, gold prices may average "$100 below where they are," Walker said.
The metal still has the potential to break through $1,000 an ounce and may climb as high as $1,100 an ounce by the end of this year as doubt about the health of the banking system and risk aversion may stimulate haven buying, Walker said.
Bullion will probably be supported at $870 to $880 an ounce for the rest of this year as physical buying from India and the Middle East will emerge around that level, he said.
In March, Walker forecast gold could climb above $1,300 by the end of 2009 as a worsening economy drove demand for a haven.
World mine production in 2009 is expected to increase by 20 tons to 30 tons from 2,416 metric tons of gold last year, led by growth in Asia, Australia and West Africa, he said.
Gold fabrication demand is expected to fall short of production this year as historically high prices and increased volatility will likely hurt the jewelry sector, he said.
GFMS publishes an annual gold survey that was started in 1967 by Consolidated Gold Fields, then the second-largest South African producer.
The research group became an independently-owned company in 1998 following a management buy-out by Philip Klapwijk, now executive chairman, Walker and Hester le Roux.
Faber, publisher of The Gloom, Boom and Doom Report, said in a May 27 Bloomberg Television interview that he was still buying gold.
Inflation in the US may approach levels in Zimbabwe as the Federal Reserve will be reluctant to raise interest rates, he said.
Philip Manduca, head of investments at ECU Group in London, told Bloomberg Television in April that gold could rise as high as $2,000 an ounce by the end of 2010.
In Vietnam, Saigon Jewelry Holding Company gold closed Wednesday at VND21.22 million a tael, or $994 an ounce in HCMC and VND21.24 million in Hanoi, VND70,000 higher than Tuesday.