Gold has been moving up in $200 steps every two years for the past decade. However, each leg up is characterized by a hesitation and retracement. That is what we are seeing now.
It was only very recently that gold finally cleared the $1,000 an ounce hurdle, after several attempts. Then it hurtled straight up past $1,200 and has just fallen back. It might take a couple of more attempts before $1,200 is history.
But if you buy gold now at $1,100 - or wait a bit longer and hope that a dollar rally and equities correction drops it to $1,050 - then you probably have a 10 per cent profit for 2010 already in the bag, for the price will surely at least pass the recent $1,226 peak.
More likely you are in for a much higher gain. A repeat of the 30 per cent increase now estimated for 2009 is perfectly possible. The normal seasonal pattern for the yellow metal would see a strong recovery in the price in the spring followed by the traditional summer lull, and then in the autumn - as this year - the best price action would follow.
It could be that in the autumn the first signs of inflation from the government interventions of the past year start to appear. That might happen earlier as the recent 20 per cent surge in Indian food prices demonstrates.
Professor Nouriel Roubini is pessimistic about the gold price because he thinks the world is in a deflationary rather than inflationary cycle and that gold will not do well unless paper currencies are being undermined by inflation, or devaluation in other words.
Dr. Marc Faber is more optimistic, despite also unofficially holding the title of Dr. Doom, and believes governments can be relied on to print more money, and that the amount of money already printed but not in circulation is already highly inflationary.
Anybody with the good fortune to have taken Dr. Faber's advice on gold over the past decade would have outperformed all other major asset classes. He does not think gold expensive at $1,100. On the contrary he reckons it is still cheap bearing in mind all that has happened in the past decade.
Certainly there is no sign of the classic spike in the gold price - like the one seen in the oil price in the summer of 2008 - there has been no doubling of the price in six months. It is a steady and hesitant advance to higher prices.
The only spike that might occur is in the reverse direction in a nasty trend reversal - such as we saw last autumn - coinciding with a dollar rally and stock market crash. But again this should be seen as a great buying opportunity.
A really big upward price spike in 2010 is less likely and then it would probably be time to sell, although gold needs to reach $6,300 an ounce to fully back the US dollar. So in 2010 take advantage of dips in the gold price to buy for future profits.
Freelance journalist & author
Dubai Media City
Dubai, United Arab Emirates