After falling to near $700 last November, gold rose again past $1,000 last month prompting some to predict the end of the U.S. dollar’s reign, while others have warned about a growing bubble.
According to the National Inflation Association (NIA), the upward march could be permanent due to the unprecedented inflationary pressures stemming from the massive federal deficit.
The declining value of the U.S. dollar, NIA says, means that "foreign countries will no longer have a reason to hold dollars and there will be no interest in buying our debt."
"Almost all of the U.S. government’s deficit spending will have to be paid for by outright money printing by the Federal Reserve," it adds.
The organization also predicts the value of gold could rise to as much as $5,400 per ounce, and it therefore advocates converting liquid assets into the precious metal.
However, some analysts caution against such exuberance. Jon Nadler, who works for the bullion dealer Kitco, says gold is setting record prices amid "some of the poorest fundamentals I’ve seen in the market for a long time," quoted by CNNMoney.com.
He suggests the price is driven by large hedge funds and institutional investors making momentum-driven trades, but as fears of a financial collapse recede, the price may come back down, he suggests.