Kyoto - Gold should surge above $1 000 an ounce as the financial crisis fuels safe-haven fund buying, but may then come under pressure as fickle investors slow purchases, the chief of metals consultants GFMS said on Sunday.

"In terms of core trading range for us, I have to say that gold going up towards the $1 000-level is not an impossibility at all," Paul Walker, CEO of GFMS, told Reuters in an interview.

"I would be surprised given the scale of the economic crisis if gold doesn't scale above $1 000," he said ahead of the London Bullion Market Association annual conference in the ancient Japanese capital of Kyoto.

GFMS predicted on September 17 that prices would soar well above $900 an ounce in the fourth quarter as the US dollar weakened and investors scrutinised the US government's creditworthiness.

Later that same day prices staged their biggest ever one-day rally in real terms, soaring from around $775 to end just shy of $863 an ounce. They jumped again on September 18, briefly topping $900 before falling amid unprecedented volatility.

Walker said gold will be averaging above $900 in the next 12 months, but in a trading range, it could rise beyond $1 000, testing its record $1 030.80 an ounce peak from March 17.

"I think the depth of this crisis suggest to me gold prices will be at elevated levels for probably for another 12 months or 18 months," Walker said.

Taken punishment

After a week of debate that roiled financial markets and put traders on tenterhooks, US lawmakers on Sunday were set to sign off on a deal to create a $700bn government fund to buy bad debt from ailing banks in a bid to stem a credit crisis threatening the global economy.

Investors often use gold as a hedge against financial turmoil and a weakening dollar. A falling US currency also makes metals priced in dollars cheaper for holders of other currencies.

But bullion has also been punished at times as part of the riskier commodities pool that had been in investors' favour until this summer, and its long-term outlook remains largely dependent on continued demand from investors.

"There is short- to medium-term upside potential, but there is also an increasing downside risk for gold prices in the long term," he said.

"The gold price could only be sustained where it is at the moment on the back of investment demand for gold. And investment demand for gold is ... very fickle or very temperamental."

Downside risks for gold are limited because of demand for physical gold for jewellery, bars and coins in markets including the Middle East and India, as well as other parts of Asia.

Walker said he was surprised when spot gold dipped below $800 per ounce, but that will be the floor for the metal in the next three to six months.

- Reuters