Gold has had three straight strong years, going from a 2001 low of $255 per ounce to a 2003 peak of $416. This string marks the first time in two decades that precious metals funds have gone up three years in a row.
Nevertheless, gold still has a long way to go until it reaches the level of the late 1970s and early 1980s. While gold is around half the peak spot price it hit back then, in inflation-adjusted terms it’s more like a quarter of the peak price so it is entirely possible that it could move up from its current price. Gold has been prized by investors for the last 5,000 years and that probably will continue because gold can go up in either inflationary or deflationary times.
Rising federal budget deficits could drive the U.S. dollar down; a weak dollar has been correlated to higher gold prices. Indeed, Merrill Lynch recently reported an 84 percent negative correlation between the trade-weighted U.S. dollar and the price of gold — as the dollar drops, gold prices go up.
