Gold rush -- 21st century style

If you just started paying attention to the price of gold when it climbed past $500 an ounce, you're not alone. After hitting its peak a couple decades ago, gold as an investment has been in the doldrums and pretty well ignored by most investors.

Now with both inflation and the price of gold up, some are wondering if it's time to dive in. Have you already missed the boat, or is there time to invest in gold and make a profit?

"I think it's still early for gold. These cycles tend to last for several years," says Mark Skousen, economist and chairman of Investment U, a free investment newsletter.

"I was just at a gold show in San Francisco and there was a small turnout. As far as the individual investor is concerned, gold isn't that popular. I'm a churchgoer, and if people ask me about gold I'll be suspicious. But no one has come up to me and asked me about gold, so I think there's still more room to grow."

The price of gold has been rising pretty steadily since 2001, and Skousen expects that trend to continue, but it may not be on an unbroken upward diagonal.

"If there's inflation, gold will probably do well," he says. "The question in 2006 is whether inflation is still a problem. If we look at the consumer price index it looks like inflation is coming down and not as bad as it was. Gas prices are down or moving off their highs.

"So while I think gold should move higher, it won't necessarily be as good as it's been the last couple of years. There will be a less substantial return. If the current trend continues, gold could be $700 by the end of 2006. I don't expect that but it certainly could see $600."

Another factor is the value of the dollar.

If you bought something at Target or Wal-Mart a couple years ago, the store took a cut and then sent your money to China. China then sent it back to the United States to buy government securities. That picture is changing as foreign governments show signs of cutting back on their purchases of U.S. Treasuries.

What's bad for the dollar can be good for gold, and Martin Weiss, editor of Money and Markets, says the dollar is headed for a crash.

"Our trade deficit is out of control and traditionally that's bad for the dollar. Foreign central bankers are raising their interest rates and that means a foreign CD will have higher rates than a U.S. CD. Foreign stocks are more attractive because they have a higher growth rate. There's a lot of money overseas that has the choice of whether to invest in China or Japan and if it shifts out of the U.S., that's bad for the dollar.


"If you have a substantial portion of your money tied to the dollar and the value of the dollar goes down then everything you have in dollars is suffering from the decline. That's not just your portfolio but also your bank accounts, insurance policies and the equity in your home."

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