(Bloomberg News) Gold may rally to a record as investors from China, Japan and the Middle East buy the metal on expectations of "hyper inflation" created by central banks, according to Phoenix Gold Fund Ltd.

"The real driver for gold is the ocean of new monetary reserves being created by irresponsible central banks around the world," David Crichton-Watt, Kuala Lumpur-based manager of the $140 million fund, said in an interview. "Hyper inflation is a very likely outcome, so gold can go to any number of dollars."

Bullion may extend its 10th annual advance as Japan, struck by a massive earthquake and tsunami on March 11, joins global peers in bolstering money supply, Crichton-Watt said. The metal climbed to a record $1,444.95 an ounce on March 7 as turbulence in the Middle East and the debt crisis in Europe spurred demand for haven investments.

European leaders will meet this week to create a permanent solution to the region's debt crisis. JPMorgan Chase & Co. said Portugal's government may collapse today as the parliament votes on budget cuts that have divided lawmakers. Japan pumped a record 40 trillion yen ($494 billion) into the financial system since the temblor to soften the economic impact.

"Western governments and Japan's government are essentially bankrupt and have no intention of ever reducing their deficits or indebtedness," Crichton-Watt, 63, said. "Once confidence goes, there will be a real panic."

Mohendra Moodley, Sydney-based fund manager of Taurus Funds Management Pty, shares Crichton-Watt's view that money supply has been very high in an attempt to repair the economies, while uprisings in the Middle East and Japan's earthquake keep investors cautious.

'Nobody's Liability'

"Investors should continue to exercise caution, hold healthy positions in gold and keep portfolios relatively liquid," Moodley wrote in a monthly report to clients yesterday. "Gold is nobody's liability."

Phoenix Gold, managed under AIMS Asset Management Bhd. and set up 2001, holds shares in gold-mining companies, physical gold as well as futures and options. It posted a 2010 return of 58.2%, after a jump of 121.7% in 2009, according to data compiled by Bloomberg News. Commodity hedge funds as measured by the Newedge Commodity Trading Index on average returned 11% last year after a similar growth in 2009.

Gold for immediate delivery traded little changed at $1,428.60 an ounce in Singapore today. Bullion gained 30% in 2010 as central banks, pension funds and individuals sought protection against currency debasement and inflation after governments spent $2 trillion to salvage the global economy from the worst recession since World War II.

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