Mostly: Classical

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Martin M

ZURICH (Reuters) - Gold has a 25-30 percent chance to breach its record high of $850 an ounce next year on growing demand, new investment products and wider world economic trends, a leading analyst said.

"The trend is up. I have a 50 percent probability that we will get to $800 next year and a 25-30 percent probability to take that up to $850," Martin Murenbeeld told Reuters on the sidelines of the European Gold Forum, which ended on Thursday.

Spot gold was quoted at $639 in morning trade, just below last week's 25-year high of $645.75 and still some way off the record high hit in early 1980.

Prices have risen nearly 50 percent over the past 12 months and doubled in three years.

The analyst with consultant M.Murenbeeld & Associates said worries about the dollar, tight metal supply and high oil prices were positive factors for gold.

And investment products such as exchange-traded funds (ETFs) were attracting more investors into the market, while longer-term institutional players such as pension funds had been looking to the metal to diversify their portfolios.

"The ETF has opened the gold market to a lot of people who had a latent interest in gold. ETFs will continue to grow in the future," he said.

The funds, traded on stock exchanges, allow investors to buy gold without taking physical delivery. Promoters buy the metal on behalf of investors and keep it in vaults. ETFs have accumulated nearly 500 tonnes since their launch more than two years ago.

"We are at the early stages of gold and commodities becoming an asset class in a portfolio. So how much money could potentially go to the commodities side? I say the sky is the limit."

UNSTABLE CURRENCY MARKET

Instability in the currency market was also likely to encourage buying of gold, he said.

"Most of us...are not always that comfortable with our own currency unit -- we don't agree with the way the government is spending the money."

He added: "People in Iran are obviously very concerned about what the geopolitical risks they are facing could do to the value of their currency."

Tensions between Iran and the West have risen as western countries accuse Tehran of pursuing a programme to acquire nuclear weapons, which Tehran denies.

Iran said on Friday it would ignore pressure to halt its nuclear programme.

Murenbeeld said investors saw gold as protection against political risk, adverse monetary policies and dollar losses, which made gold cheaper for holders of other currencies.

"The dollar refused to decline last year but signs of fatigue are creeping back into the technical picture as of late...our view is that the dollar must decline further."

He said the U.S. current account deficit released nearly $4 billion a day in foreign exchange markets and the dollar tended to fall if that was not fully absorbed.

Murenbeeld saw world political tensions persisting, which meant more demand for bullion.

"Today's world is more risky than the days in early 1990. We are just in an early stage of a very serious geopolitical development in the world."

He pointed out that gold was still relatively cheap.

According to consultant GFMS Ltd, the record price paid for gold in early 1980 would correspond to $1,456 now after factoring in inflation.