April 16 (Bloomberg) -- DWS Investments GmbH, the mutual- fund unit of Deutsche Bank AG, said assets in its gold fund expanded 50 percent this year as investors sought to diversify portfolios and hedge against inflation.

The DWS Gold Plus fund now manages about 600 million euros ($797 million) of assets, compared with 400 million euros at the beginning of the year, said Stephan Werner, who helps manage the fund at the Frankfurt-based company.

“In the past couple of weeks, we’ve seen constant inflows of investments into commodities, compared with declines in the second half of last year,” Werner said by phone April 13. “There is an expectation of inflation and gold has been bought in advance.”

Investors favored mutual funds over hedge funds for commodity investments in the first quarter, seeking the protection of regulated money managers, data from EPFR Global and Gardner Finance AG show. New money into exchange-traded commodities betting on higher gold prices rose 53 percent to $1.4 billion from a year ago, according to Jersey, Channel Islands-based ETF Securities Ltd.

The DWS gold fund, which has gained an average of 5.3 percent a year since it started in 1994, invests in products tracking gold prices, and futures and options based on fixed- income securities. DWS Investments manages about 1 billion euros in commodities.

Gold has advanced 1.2 percent this year, extending eight consecutive annual gains. Governments and central banks around the world are spending trillions of dollars to revive their economies out of the worst slump since the World War II.

‘Short-Term Negative’

Still, Werner said he is “short-term negative on gold” and expects inflation to return only in the second half of 2010.

“When you look at data, we have the U.S. increasing the saving rate, consumers are buying less and the unemployment rate is rising all over the world. That’s not a good environment for inflation,” he said.

Werner said he favors oil over gold and copper in 2009, expecting the fuel to add to this year’s 11 percent gain. New York-traded oil has risen 47 percent from last year’s low of $32.40 a barrel in December after the Organization of Petroleum Exporting Countries, supplier of about 40 percent of the world’s oil, agreed to trim output three times since September.

DWS joins Bank of America Corp.’s Merrill Lynch unit and U.S. Global Investors Inc. in forecasting higher oil prices by the end of this year. Gross domestic product in the U.S., the world’s largest oil consumer, will end four consecutive quarterly declines in the third quarter by expanding 0.5 percent, according to economists surveyed by Bloomberg.

Copper’s 59 percent rally this year, leading gains in industrial metals on the London Metal Exchange, is “too much and too fast,” Werner said. Some of it was probably caused by investors having to buy contracts to close out earlier bets that prices would decline, he said.

To contact the reporter on this story: Chanyaporn Chanjaroen in London at cchanjaroen@bloomberg.net.

Last Updated: April 16, 2009 02:26 EDT