A record US trade deficit and high consumer debt may hurt the dollar and the economy, increasing the allure of alternative investments, said Angus Geddes, a co-founder of Sydney-based Fat Prophets, which this year launched a A$32 million (HK$187.47 million) investment fund.

Oil producing-nations, benefiting from record prices for the fuel, may also buy more gold, he said.

``Investment demand in gold is picking up around the world, with gold prices rising in other currencies,'' Geddes, 36, said. ``There's going to be a lot more stress in the world's financial system, particularly in the US, derived from their weakening currency.''

Gold may rise to US$850 (HK$6,630) an ounce within three years, Geddes said.

Spot gold prices in yen terms reached a 14-year high of 48,307 yen (HK$3,381.49) an ounce on June 30, and touched a record 366.27 euros (HK$3,465.61) an ounce on June 23.

In dollar terms, gold futures in New York reached a 16-year high of US$458.70 an ounce in December as concern about US trade and budget deficits drove investors to buy bullion.

``For the US, when the music finally stops, the hangover will likely be considerable,'' Fat Prophets said. ``This bodes dark tidings for the US dollar.''

Investors are already starting to convert their dollars into other assets, Geddes said.

``Middle Eastern nations are receiving record amounts of US dollars in exchange for oil, and this is clearly having a positive impact on demand as vast quantities of petrodollars are diversified into hard assets,'' Fat Prophets said. ``This last happened on a grand scale during the 1970s when a skyrocketing oil price contributed to gold hitting an all-time-high of US$850.''

Gold prices may also rise as precious metals demand increases in China and India, Geddes said.

Merrill Lynch is also forecasting higher gold prices. Graham Birch, at Merrill in London, on July 11 said gold may rise to US$725 by 2010, as economic growth turns China into the world's biggest jewelry consumer.

BLOOMBERG