What's the 2010 mantra for investors after gold's nearly year-long hot streak? Buy the dips.
That seems to be the consensus strategy for a metal whose value many analysts feel is likely to continue to appreciate barring any unusual surge in the dollar or damaging geopolitical event. Comex gold is up about 24 percent in a year in which its peak-to-trough gain was about 36 percent; it hit a record high of $1,217.40 on Dec. 12.
In an investment climate that could be good deal less certain for stocks after their massive runup in 2009, gold could again be a way to capitalize on both up and down moves in the markets.
"Long-term being anywhere from a year to 10 years, the trend is that gold is going to continue to rise," said Dan Deighan, president of Deighan Financial Advisors in Melbourne, Fla. in an interview. "There are a lot of factors that influence that, but the major force is the lack of confidence that people have in all the major currencies, especially the dollar."
Confidence is a fungible thing, though, and gold could see its share of gyrations as the global economy shows signs of breaking through.
That's why many gold experts are telling investors to watch prices carefully and buy more when the price sags, sure that any drops will be temporary.
"That's a strategy that worked in 2009. There's no reason it won't work again in 2010," said Sean Brodrick, commodities analyst for Weiss Research's "Uncommon Wisdom Daily" newsletter. "That said, we could see gold pull back more if the dollar strengthens on fears about the euro currency having problems, or some kind of conflict in the Middle East that could improve things for the US dollar. But the US dollar is having serious problems that will only get worse in 2010."
While the dollar has firmed somewhat from its lows this year, there is little confidence that the US currency will show dramatic gains in the year ahead.
The slow-growth economy and the corresponding need for the Federal Reserve to keep interest rates low is apt to do much to fuel gold's growth. Like most commodities, gold is traded in dollars so a cheap greenback makes the metal a good bargain on the global stage.
Metals overall have been a strong growth area; silver is up 52 percent this year while copper, often seen as a barometer of economic growth, has skyrocketed 136 percent in 2009.
But the story is about more than interest rates, just as it is about more than the Fed and the US currency.
Many established market currencies could weaken against their emerging market counterparts, lending further momentum to the trade.
"In our opinion, two years of extremely lax monetary policy around the world will ultimately result in a significant increase in physical consumption of energy and industrial materials, particularly in emerging markets," Bank of America-Merrill Lynch analysts wrote in a year-ahead research note. "As a result, we expect significant upward pressure on cyclical commodities over the coming 12 months."
BofA-Merrill Lynch has set a price target for gold of $1,500 per ounce in the next 18 months, representing a 27 percent increase over the current level.
That's a bit more bullish than consensus but not by much. Brodrick called for $1,300 gold back in June, and he's sticking to that prediction until the metal breaks a trend line.
Increasing amounts of investors are taking physical possession of gold through a variety of means, while others prefer investing in the metal through the exchange-traded funds that track its price.
The most popular gold ETF is the SPDR Gold Shares , which holds actual gold and has been a pretty reliable price tracker on a 10-to-1 basis. Central Gold Trust is a more lightly traded fund which invests in bullion.
Don Bertrand, vice president at WealthTrust Arizona in Scottsdale, prefers using managed futures because of flexibility, something that could be particularly important if gold trading does get volatile in the coming year. Futures traders can capitalize on gains and losses in price.
"It's kind of the other side of the whole fiat currency issue," Betrand said. "If there is a major currency crisis we could potentially see gold go quite a bit higher than it currently is."
The danger of more currency troubles is why Deighan believes gold can rise independent of Fed policy.
The central bank, he said, will be forced to raise rates not merely to control inflation but because of fear over the dollar and the government's heavy deficit spending.
The Fed also will have to raise rates to control credit spreads that are discouraging banks from lending. Banks have no incentive to take risks now because the cost for banks to borrow is so cheap, Deighan said.
"If (a rate hike) was happening in a vacuum it would probably level off the bull market in gold for a short period of time," he said. "We have to look at why the Fed is looking at raising the funds rate. They're not doing it voluntarily."
With all that fear in the air, gold bugs believe there's plenty of room left in the metal's surge.
"We're hitting a very interesting time in the US economy where it's just one Ponzi scheme after another," Brodrick said. "If things really blow up in the government's face I think people will really want to hold hard assets."