Back in December, a correspondent speculated that gold would reach $900 before Christmas. Sure enough, gold cleared $900 an ounce, albeit a bit after Christmas. The next barrier, and a move into uncharted (four figure) territory, is $1,000 gold.
The primary driver of the gold price ever since it awoke from its torpor in the early part of this decade has been weakness in the U.S. dollar. Hence, the dollar's fall to new lows has occurred concomitantly with the gold price closing in on $1,000 an ounce.
With the threat of a U.S. recession still potent and aggressive interest rate cuts having been proffered as a counter by the Federal Reserve, it is no wonder that the dollar has paid the price.
And the rate cutting may not be over yet, as Fed Chairman Ben Bernanke, who is now predicting bank failures to come, hinted last week. The market seems to expect another rate cut after the next meeting of the Federal Open Market Committee on March 18.
If this happens then we could see gold breach $1,000 immediately after, or perhaps even before if the Fed continues to telegraph its intentions ahead of time - leaving the formal decision itself as a bit of an anticlimax.
Gold watchers will also be paying close attention to the pronouncements of the European Central Bank (ECB), which has held Eurozone interest rates steady since June of last year, and has looked as though it will continue to do so for the time being as part of its bravely hawkish stance on inflation.
But if the ECB capitulates to recession fears and cuts rates, then more funds may be pushed into gold. The next meeting of the ECB's Governing Council is on Thursday, and the pronouncements that follow will be interesting.
What are the risks?
For all this bullish talk, what are the chances of gold moving in the opposite direction?
The dollar has surprised before, and a rally by the greenback could unseat gold quite dramatically, albeit temporarily. The trigger could be a surprise run of positive economic news suggesting that the U.S. will avert recession after all; or maybe an unexpected reversal in the policy of the Fed, meaning a move back towards focussing on inflation risks, either because the economy is looking better, or because inflation gets to the point at which it cannot be ignored any longer.
This need not take the form of a rate rise holding rates steady at the next meeting, contrary to market expectations, might be enough.
A successful IMF gold sale also has the potential to trip up the gold price, although it has to be said that this may not come to pass, particularly given the ability of the U.S. Congress to block the sale, which it has done on previous occasions.
A major factor is the price of oil. Much of the time gold and oil move in tandem, mainly because both respond to fluctuations in the parity of the dollar.
But with recession perhaps on the cards and a slowdown already in progress, oil could be seen as somewhat vulnerable. Economic pain in the U.S., at present the world's biggest consumer of oil, will crimp demand to some, although probably fairly minor, extent.
While my feeling is that extraordinary demand growth in China and elsewhere will take up any and all slack in the oil market in the longer term, in the short term there may be scope for a temporary reduction in the oil price if recession bites in the U.S., with the fall intensified to a degree by the same kind of speculative activity that has helped to take the price higher. But then again, I wouldn't count on it.
Perhaps, if and when gold does hit $1,000, we will see the big sell off that people have now started to talk about occur for purely psychological reasons. After all, nothing goes up in a straight line, and everybody knows that.
