* Dollar weakness, inflation may push gold to new highs * Supply response from gold miners to price rise muted * Most recovery scenarios likely to boost gold By Jan Harvey LONDON, Aug 11 (Reuters) - Gold prices could set new record highs above $1,030 an ounce in 2009 as investors flock to the precious metal as a hedge against future inflation and a weaker dollar, according to a leading fund manager. Investec Global Gold Fund's portfolio manager Daniel Sacks said a combination of safe-haven buying of gold as an alternative to paper currencies, inflation, and a dearth of fresh mine supply in response to rising prices are set to boost bullion this year. "We believe gold will continue to perform well in 2009 against most assets and, in U.S. dollar terms, should attempt a breach of the 2008 highs of $1,030 an ounce," he said. The precious metal hit that level in March last year as a sharp slip in the dollar fuelled hefty gains. Dollar weakness tends to push investors towards hard assets, such as gold. While its 2008 high was a nominal record, in inflation adjusted terms the precious metal still has scope to rise before reaching the highs it hit in the early 1980s, Sachs said. "The price of gold is still just half of its prior peak in 'real' terms, even after the rally of the past eight years," he said. "We see much more upside than downside risk for bullion." Sacks said a host of factors, including ongoing dollar devaluation, diversification of reserve currency holdings, fresh fund appetite for assets like commodities and inflation fears, could combine to support gold. "In almost all but a global soft-landing scenario, gold is likely to rally, in our view," he said. "With a global recovery unlikely to be smooth, the two main risks to most asset values are inflation and the U.S. dollar -- both of which are decisively gold positive." Sacks' Investec Global Gold Fund, which was founded in 1990, has 126.3 million pounds ($208 million) in assets under management, and invests primarily in gold mining equities. HARD ASSETS BOOSTED Gold has rallied in recent weeks as dollar weakness boosted investment in hard assets, hitting a two-month high of $971.25 an ounce late last week. The metal has also been lifted by expectations a global economic recovery could lead to inflation, after governments around the world pumped liquidity into the financial markets earlier this year to kick-start lending. "The macro case for owning gold remains strong: inflation expectations rising, and short rates to remain extremely low," he said. "Inflation expectations...have trended steadily higher since fears of deflation peaked. "We expect this trend will be maintained as confidence in global economic recovery grows and central banks maintain easy montary policies." He said both the United States and China are likely to maintain low interest rates for longer than normal in this economic cycle, as deflation fears trump concerns over inflation and amid expectations U.S. economic recovery will be slow. He said underlying fundamentals of supply and demand are also likely to be supportive, with the heavy scrap selling that limited price gains in the first quarter drying up, Indian demand recovering and exchange-traded funds holdings steady. Further support will be offered by the low level of official sector sales this year, he said. Sales under the Central Bank Gold Agreement have been only 140 tonnes this year, out of a possible 500 tonnes. To access a Reuters analysts' poll of precious metals price forecasts, click on For an analysis on central banks and gold click (Reporting by Jan Harvey; Editing by Keiron Henderson)

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