Gold gains limited by deflation, dollar: Prechter

By Frank Tang

NEW YORK (Reuters) - Gold's upward potential is limited because of strong demand for the U.S. dollar to repay a burgeoning debt amid deflation, technical analyst Robert Prechter said on Monday.

However, Prechter, known for forecasting the 1987 stock market crash, said that investors should own a small amount of gold, together with U.S. Treasury bills and cash, for safety and wealth preservation.

"I think gold is not going anywhere, not $5,000 an ounce like many people are predicting," Prechter, chief executive at research company Elliott Wave International, told the Reuters Investment Outlook Summit in New York.

"It seems to me that the most popular opinion out there right now is hyperinflation. I think that we are in an opposite environment -- a deflationary environment," Prechter said.

In May, he said that gold might have already topped at above $1,000 an ounce in March 2008.

Prechter called gold "real money", and said that differentiates it from other commodities.

"Unfortunately, in this environment, what creditors...and debtors need the most are dollars, so I think the main thing that will return to substantial demand when deflation bites again is the dollar," he said.

Investors often view gold as insurance against the falling value of their dollar-denominated portfolios. The inverse relationship between gold and the dollar broke down early this year as both assets benefited from a flight to safety.