Oct. 29 (Bloomberg) -- The time to hold gold is now as faster inflation and increased purchases through exchange-traded funds and by central banks boost demand amid stagnant mine output, Paul Tudor Jones’s Tudor Investment Corp. said.

“I have never been a gold bug,” Jones, whose company manages about $11.6 billion out of Greenwich, Connecticut, told investors in an Oct. 15 letter, a copy of which was obtained by Bloomberg News. “It is just an asset that, like everything else in life, has its time and place. And now is that time.”

Gold futures gained 18 percent this year in New York and reached a record $1,072 an ounce on Oct. 14, on concern that near-zero interest rates and government spending will debase currencies and spur inflation. Fund manager John Paulson increased his bets on gold this year, while David Einhorn told clients of his $5 billion Greenlight Capital Inc. hedge fund in January he was buying gold for the first time.

The Federal Reserve has kept its target rate for overnight loans among banks between zero and 0.25 percent since December to help stimulate the economy. President Barack Obama increased the nation’s marketable debt to an unprecedented $7.01 trillion as the government borrows to revive growth. The U.S. economy, the world’s biggest, expanded for the first time in more than a year in the third quarter, the Commerce Department said today.

“As one would expect, rising inflation suggests higher gold prices, especially when the Fed is perceived to be behind the curve,” according to the letter. “Gold appears to be cheap. In our view, gold’s value should increase as its scarcity relative to printed currencies increases.”

Hedge Fund

Patrick Clifford, an outside spokesman for Tudor in New York, confirmed the letter was sent to investors.

Tudor’s Tudor BVI hedge fund gained 14.9 percent this year through the third quarter, according to the letter. Tudor identified gold, emerging market equities denominated in local currencies and commodity related stocks as among the most likely assets to perform best.

As the metal’s price rallied to a record, so too have bullion holdings in exchange-traded funds. Assets in the SPDR Gold Trust, the biggest ETF backed by bullion, reached an all- time high 1,134 metric tons on June 1, and were at 1,104.43 tons as of yesterday, its Web site showed. Central banks were net buyers in the second quarter for the first time since at least 2000, according to the World Gold Council.

While metal exploration expenditure has increased, mine production has been “stagnant” the past decade and new output is “marginal” in terms of available supplies, according to the letter.

“Any incremental demand for gold must be met through sales from current owners,” the company said in the letter. “They just aren’t making that much of it anymore.”

To contact the reporter on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

Last Updated: October 29, 2009 12:56 EDT