BlackRock says gold record high may be challenged

By Sitaraman Shankar

LONDON (Reuters) - Investment manager BlackRock expects tight gold supply and a gradual rising trend in the price which could lift the metal to new highs above the record $1,030 per ounce hit last week.

"We expect a gradually rising trend in the gold price and if that happens we will get to a new high. We are expecting that positive trend to continue, with volatility over the short term," said fund manager Evy Hambro, who runs BlackRock's $17 billion (8.5 billion pound) World Mining Fund and co-manages the $8.9-billion World Gold Fund.

Gold traded at $931.60 an ounce on Tuesday, well off a high of $1,030.80 hit on March 17.

"We think the replacement cost of gold today is much higher than where the market is right now," Hambro said, adding that even if the price reached the desired level it would have to be sustained for gold companies to invest.

"Just because it reaches that number doesn't mean it's going to change anything. We're not going to see all gold mining CEOs building new projects. The price needs to average that over a decent period of time for them to start investing shareholder capital into new production assets," he said.

The Gold fund's top three holdings as at the end of last month were Australia's Newcrest Mining (NCM.AX: Quote, Profile, Research), Canada's Barrick Gold (ABX.TO: Quote, Profile, Research) and Kinross Gold (K.TO: Quote, Profile, Research), which together accounted for over 22 percent of the fund.

"In the gold space we are very much in a situation where production will continue to likely decline. There are not enough new gold discoveries to replace the gold being mined," Hambro said.

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