Investors wary of other investment choices are taking physical possession of gold in a move that could drive the metal to historic heights.
Gold prices could make a run at $1,200 and beyond this year as investors look for safe places to put their money amid continued turmoil not only in the economy but also the stock market and the US political structure.
"When you have such a large part of US population convinced we're running to hell in a handbasket with federal spending, you're going to have a large part of the population buying and taking possession of gold out of fear of what's going on," says Jim DiGeorgia, commodities analyst for Gold and Energy Advisor.
Investors can buy gold in a variety of ways—through futures contracts, mutual funds, exchange-traded funds, as well as actual ownership.
Owning gold is primarily done through purchases of gold bars, which can be stored in safe deposit boxes in banks. Other investors can buy solid-gold coins or even use jewelry as an investment. Gold bars, though, are generally considered the best investment because they can be bought at retail prices instead of the markups that other gold investments carry.
"I would recommend the average investor, if they want to get into hard assets, put 3 percent to 5 percent of their money in gold and hope they never have to use it," says Burton Rothberg, a former senior trader with Commodities Corporation, who has invested in the gold markets for decades.
The trend towards owning actual gold also seemed to accelerate last month when Greenlight Capital hedge fund manager David Einhorn told clients he was getting out of the SPDR Gold Trust ETF in favor of physical possession, due in large part to fees from the fund that he said are higher than storing gold.
Analysts see the metal's surge continuing as stocks cool off and the possibility of a double-dip recession looms. Gold has a reputation as the classic inflation hedge, but is surging even though many economists see deflation as more of an immediate threat.
In recent days, gold has reached what technicians call a "symmetrical triangle" chart move, contributing to a strongly bullish feeling that they say could continue for years. That move has coincided as well with a weakening of the dollar. Dollar-denominated assets like gold can be bought more cheaply when the US currency falls.
"If the equity markets continue teetering at a very critical level, the longer we're here and flirt with that, the more nervous the average investor—and the smart money—will become," says Al Abaroa, commodity strategist for Options Pro. "The shift to gold is going to be that much stronger."
Gold had been languishing in a $930-$960 trading range since registering a historic high of $1,033 in March. Trading remained relatively lethargic as stocks jumped about 50 percent in the United States and more in some global markets.
But as sentiment grows that the stock rally was built largely on the breaking of technical barriers and has hit a wall of fundamentals, the trade for gold is back on and ready to keep pushing higher.
The economic picture remains cloudy, a state exemplified by Thursday's jobless claim numbersthat showed a recovery in the job market remains elusive to say the least.
And turmoil in Washington, centering on both the health care debate and the future of fiscal and monetary policy, has investors looking for shelter.
"When you add all of these things on top of one another, it's a very bullish case for gold," DiGeorgia says. "People are very concerned about a double-dip."
Projections vary as to how high the metal could surge.
Abaroa sees important technical levels at $989, $1,002 and $1,007, which he said "could happen very quickly" and send gold over the psychologically important $1,000 barrier by the end of September. He sees $1,200 by the end of the year as likely.
For DiGeorgia the move could be even more pronounced, particularly if some type of "exogenous" event—a severe round of bank failures, or a geopolitical crisis—should occur. In the case, he says, 2010 could see $2,500 gold.
But even barring such an unusual forecast, he too predicts gold easily hitting $1,200.
Options traders are fully ready to go along for the ride.
Open interest was strong Thursday for mining companies as well as the metal's primary exchange-traded fund, the SPDR Gold Trust.
Traders were putting heavy bets on the GLD's December 105 strike, meaning they are looking for a gain in the 10 to 15 percent neighborhood, says Andrew Wilkinson, senior strategist at Interactive Brokers.
"They're still pretty optimistic here with gold nearing $1,000 ... indicating this rally might have reason to run," Wilkinson says. "There's a clear bias towards looking for a new safe haven here."
Wilkinson noted that options for Barrick Gold were showing some bearishness, but the market mood overall looked strong for gold.
Add to that a general sense of unease about the state of US politics, and investors are finding plenty of reasons to own gold.
"Gold is the best insurance against the ignorance and stupidity of politicians," DiGeorgia says. "There's a whole lot of stupidity and ignorance on both sides of the aisle."