BlackRock says gold not pricey given fundamentals

Evy Hambro, who manages the 2.8 billion pound ($4.5 billion) Gold & General Fund for the world's largest asset manager, said gold production has largely been flat over the past decade, while the costs of bringing a new mine on stream have risen.

"That supports the price on its own, and then you have to say the inflation-adjusted price for gold to have kept pace with purchasing power is over $2,000 an ounce. So those are your reference points around the gold market right now, and gold is within that range and I don't think it's gone too far at all," he said, although he could not comment on a price target.

The gold price, which is within a few dollars of a recent record high at $1,387.10 an ounce, has gained 1.5 percent this week. The U.S. Federal Reserve said on Wednesday it would spend $600 billion on buying government bonds as a means of injecting cash into a struggling economy. The dollar has fallen by nearly 10 percent against a basket of major currencies in the past two months as investors increasingly prepare for a long period of low U.S. interest rates.

The gold price has gained 11 percent in the same period as it has become less expensive to non-U.S. investors, many of whom have ditched the greenback in favour of higher-yielding currencies such as the Australian dollar. "Gold is not a paper currency, it is nobody else's liability, it is not a promise to pay by a bank and it's something you can't print, whereas dollar bills and other paper currencies you just turn the printing press on," Hambro said.

"What we're seeing now is a general shift in people's attitude towards things that are going to preserve their purchasing power over time, and gold is a natural beneficiary of this kind of activity in the market."Investor flows into precious metals have risen this year, as reflected by increases in holdings of metal in exchange-traded funds and in open interest in New York precious metals futures.

Part of the attraction of gold is its property as a hedge against inflationary pressures as, unlike returns from stocks or bonds which are eroded by inflation, it increases in value along with consumer prices. Investors see the potential for a pick-up in inflation as the money supply increases when the Fed resumes its programme of purchasing short- to medium-dated Treasuries and returning cash to the financial system.

"The central banks would like to see some growth and inflation coming back, and the activities they're undertaking are designed to engineer this," Hambro said. "Whether (inflation) it is far out, or medium term, or near term, I think that is what they're trying to engineer, and the precious metals, and gold in particular, and the other industrial metals are responding to it."