June 23 (Bloomberg) -- Asian investors may buy more gold to hedge against inflation and possible local-currency depreciation, supporting the price of the precious metal, John Wixley, head of global markets in Asia at Standard Bank Group Ltd., said.

``The outlook for gold in the second half of this year depends on what happens to inflation,'' Wixley said in an interview from Hong Kong. Many investors view gold as a store of value at times of rising consumer prices and weakening currencies, and as a haven from financial and political turmoil.

Gold is advancing for an eighth year as record crude oil, corn, soybean and rice costs stoke global inflation. Wholesale prices in India, the world's biggest consumer of gold, are rising at the fastest pace in 13 years. Consumer prices in Vietnam climbed 25.2 percent in May, the quickest pace in 16 years, and inflation in China reached a 12-year high in February.

``Much higher Asian emerging market inflation could trigger a rush to gold as a hedge against domestic currency weakness and declining purchasing power,'' John Reade, analyst at UBS Ltd. in London, said today in a report. ``Although we suspect that the damage to jewelry demand and surging scrap flows will make Asian gold demand changes negative rather than positive overall.''

Gold climbed to a record $1,032.70 March 17 and traded up 0.3 percent at $904.55 an ounce at 5:16 p.m. in Singapore today.

China Demand

Standard Bank is Africa's largest bank. Industrial & Commercial Bank of China Ltd., the world's biggest by market value, bought a fifth of it in October for $5.4 billion, the largest overseas investment by a Chinese company.

``We are working with ICBC to manage flows of precious metals into and out of China,'' Wixley said June 18.

China's gold fabrication demand soared 20 percent in 2007 from 2006, compared with a global 5 percent gain, Wixley said.

``That's largely due to rapid growth in income amongst domestic consumers,'' he added. ``There's no doubt some investment demand is coming through as a substitute for putting money into the equities market which has come off sharply.''

China's benchmark stock index fell by half from last year's peak on concern moves to tame inflation will dent earnings.

``In Vietnam we're seeing exactly the same thing,'' Wixley said, adding that ``there's more of an inflation fear'' there to spur gold purchases.

Investment demand for gold in Vietnam more than doubled to 31.5 metric tons in the first quarter of this year, the World Gold Council said last month in a report, citing data from London-based researcher GFMS Ltd.

Currency Declines

Gold has fallen 12 percent from its record in March as the dollar gained against a basket of six major currencies on speculation the Federal Reserve may have finished lowering borrowing costs. A stronger dollar tends to discourage buying of gold as an alternative asset, and it makes dollar-denominated commodities more expensive for holders of other currencies.

Eight of the 10 most-traded Asian currencies outside of Japan fell against the dollar since April 30, when the U.S. Federal Reserve made the last of seven interest rate cuts in the past nine months.

``If oil prices remain high and if U.S. dollar interest rates do not increase significantly, there will be continued strong support for gold, probably around the $750 per ounce level,'' Wixley said.

Central bankers around the world are voicing concern about inflation, fueled by soaring oil and food costs.

``It does look like the various governments are taking quite strong action,'' he said. ``If local interest rates continue to go up and in particular if U.S. dollar interest rates start climbing in the second half, that will put some downward pressure on the gold price.''

Jewelry demand for gold in Asia outside of Japan was 1,107 tons a year in 2007 out of 2,425.7 tons worldwide, according to London-based GFMS Ltd. China is the world's second-biggest consumer of gold after India, with total demand estimated at 327.8 tons in 2007.

To contact the reporter for this story: Feiwen Rong in Singapore at frong2@bloomberg.net

Last Updated: June 23, 2008 06:01 EDT