Kyoto - Private banks could be the next big buyers in the global gold market, helping drive prices higher as they consider restocking bullion bars that were sold off in calmer times, the top HSBC gold trader said on Monday.

Jeremy Charles, chairperson of the London Bullion Market Association and global head of precious metals trade at HSBC Bank, also said he expected central banks around the world to put the brakes on their plans to sell down gold reserves as they see other assets deteriorate, lending further support to prices.

"I think the institutional investors and private banks in particular will all be reconsidering their strategy. My belief is they are likely to want to own some gold again," he said on the sidelines of the LBMA's annual conference. The current generation of private bankers destocked their gold holdings in the 1980s and 1990s to pursue higher-return investments in recent years, but are now seeing the wisdom of the previous generation's gold holdings, he said.

The deepening world financial crisis as the burden of toxic housing debt pushed US and European banks to the brink of collapse has roiled investors globally, causing many to rethink their approaches and potentially putting a new shine on gold.

Charles also said he saw only 10% downside potential from the current gold price of around $875 an ounce, with far greater potential on the upside. He declined to give a price forecast.

"The premiums around the world tell a big story to me," he said. "The recent dip in the gold price has created massive demand from the retail investors."

Premiums to buy physical bullion, normally in the range of a few dollars, surged to more than $20 an ounce over the last few weeks - the highest in recent memory - amid an unprecedented spike in demand to hold gold bars or coins, he said.

The spike was caused by a combination of mounting anxiety tied to the US financial crisis and relatively tame spot gold prices as financial institutions sold holdings to raise cash.

Last week, the US Mint said it was temporarily suspending sales of American Buffalo 24-karat gold one-ounce bullion coins because strong demand had depleted its inventory.

In mid-August, a shortage of American Eagle one-ounce gold coins due to "unprecedented" demand had also forced the US Mint to temporarily suspend sales of the popular coins.

In Asia, premiums for gold bars jumped to this year's highs at $2 an ounce to the spot London prices this month, driven by demand from jewellers and investors as well as tight supplies.

While Western retail money flowed into exchange-traded funds (ETFs), with the biggest of these reaching a record 724.94 tonnes last week, investors in places like India, the Middle East and other countries with a deep affinity to gold rushed to buy.

If private bankers and other financial investors join the spree, prices could quickly retest their mid-March record high of $1 030.80 an ounce, analysts and traders say.

The ETFs are backed by physical gold, which gives investors exposure to the gold price without needing to take delivery. That adds to demand for the precious metal, which has attracted safe-haven investors during a year of unprecedented turbulence.

Bullion holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, holds near a record at 724.63 tonnes.

- Reuters