How High Will Gold Prices Rise?

These days investors frustrated by a shaky stock market believe that all that glitters is gold.

Futures in the precious metal for December delivery may hit $1,500  an ounce next year,  21 percent higher than where they traded today in London, according to Bloomberg News.

Gold futures  are up 5.8 percent in August as investors grew increasingly worried about the state of the economy.  Followers of Glenn Beck and other gold bugs show no signs of losing faith.

“We’re back to fear and apprehension” in the wider economy, said George Gero, vice president with RBC Capital Markets Global Futures in New York, in an interview with Dow Jones Newswires.

One investor who may think gold’s run-up is overdone is billionaire George Soros, who recently called gold “the ultimate asset bubble.” He unloaded 341,250 shares of the SPDR Gold Trust, the largest ETP backed by bullion, in the second quarter, according to Bloomberg News.

Soros’ s move is either cagey or foolish. Panicky investors will continue to drive up gold prices as they continue to worry about equities continuing to decline and government deficits continue to climb.   Moreover, gold jewelry demand will drive up prices once the economy improves.  Other investors see things differently as Bloomberg notes:

Bullion’s four-fold rally since the end of 2000 has attracted fund managers Eric Mindich and John Paulson. Mindich’s $13 billion Eton Park Capital Management LP bought almost 6.58 million shares of the SPDR Gold Trust in the second quarter, according to an Aug. 16 SEC filing. That’s equal to about 20 tons of gold. Paulson & Co., managing $31 billion, held 31.5 million shares in the SPDR Gold Trust, making it the largest investor, an Aug. 16 SEC filing shows.

The only cure for gold fever is economic prosperity, which most economists say is years away.

—Jonathan Berr