Investors are continuing to push gold prices to record highs, leading analysts to predict that the metal could reach $1,200 and beyond this year.
Gold hit another record high on Wednesday as the dollar slipped and global stocks rose for the third day running.
Analyts say investors are rushing into gold as they look for safe places to put their money amid continued turmoil not only in the economy but in 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 seemed to accelerate in August 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.
Gold has recently 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."
And as sentiment grows that the stock rally could falter soon, the trade for gold is back on and ready to keep pushing higher.
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 $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.
"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."