Prices might even jump to $800 from $556 now, if Iran’s nuclear issue heated up and oil hit $100 a barrel, it said. Oil prices are currently ruling at around $68.

"For gold, event risks are surfacing at a time when mining supply was already inadequate and jewellery demand firming.

"Fundamentals alone justify prices near $600 by year-end, while a meltdown in Iran/spike in crude could see $800 gold," it said.

Iran could face UN economic sanctions over its atomic programme. The US and the EU want the International Atomic Energy Agency to refer Iran to the UN Security Council at an emergency meeting on February 2.

"Iran situation remains fluid and unlikely to be resolved soon. This backdrop is supportive of precious metals and energy, but leaves base metals somewhat vulnerable," the report said.

Gold prices spiked to a 25-year peak of $567,60 an ounce on Friday. The metal gained 18% in 2005 and has risen another 8% this year.

The report said the market needed both mine supply and considerable amounts of other sources of supply such as sales by central banks and investors to achieve balance.

By 2007, non-mine supply would be needed to be half of mine supply to balance the market, considering growth rates in jewellery demand, the report said.

"In our opinion, there is a zero percent possibility of mines achieving 50% production growth by 2008," it said.

"This long-term structural shift in the need for non-mine supply is strong enough driving force for gold’s current bull market but the recent emergence of the Iran nuclear issue has simply added to the case for the metal."

The reports said gold was likely to gain from a favourable currency environment, with the dollar seen range-bound in the first half of the current year, while weakening later.

A weak US currency makes dollar-priced gold cheaper for holders of other currencies and lifts gold demand.

"The recent pullback in gold from its record highs should not be interpreted as a peak, rather we see it as a stage in a longer rally," it said.

"Gold’s bullish hues are based on a stagnant supply profile, rising investor interest in real assets and the influx of petro-dollars from the Middle East," the report said, adding the magnitude of petro-dollar flows was difficult to measure.

The report also noted that central banks had ceased to be net sellers of gold for the first time since 2003. It did not elaborate.

Gold reserves with central banks and the International Monetary Fund total around 31,000 tonnes.

In some European countries, gold accounts for half of their reserves, while in the US, the world’s biggest holder, it makers up 64%.