Gold fever or gold rush?

Why the price of gold is hitting new highs, and where it might be going next

Gold prices are on the rise.
(Image credit: Corbis)

What happened

The price of gold hit a new high of $1,059.60 an ounce early Thursday, as investors turned to the precious metal as a hedge against a weakening dollar and the possibility of inflation down the road (CNNMoney.com).

What the commentators said

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“Signs of gold fever are everywhere,” said Scott Cendrowski in Fortune. One “top-ranked” gold fund manager has offered the “astounding prediction” that gold will hit $5,000 an ounce. But if you look at fundamentals like supply and demand, it appears “gold is poised to fall.” Gold mining projects are starting to bear fruit, and “$1,000 gold brings out gold scrap sellers,” who unloaded 900 tons of gold jewelry and coins in the first half of 2009 alone.

That’s not going to stop gold’s rise, said David Goldman in Seeking Alpha. It’s not just inflation: “Gold is a hedge against the collapse of America’s central role in world affairs,” and if central banks get nervous about the dollar, they’ll snap up more gold than miners can produce. “What��s the price of the last ticket on the last train out of Paris on the night the Germans march in?” The sky’s the limit.

Or perhaps big exchange-traded funds have made gold “so incredibly easy to buy and to speculate with,” said Felix Salmon in Reuters, that individual investors have jumped in, in which case “goldbugs are no longer just hold-it-until-you-die inflation hawks and eschatologically inclined survivalists.” If that pans out, gold “isn’t safe”—it’s at the whims of heavily leveraged “speculators.”

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