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Gold bulls bet the real crowd has yet to arrive

November 6, 2009 |  4:46 pm

The gold-bull bandwagon is a popular ride, and getting more so every day. The latest big-name investment newsletter writer to wax glowingly about gold’s prospects is Fred Hickey, editor of the High-Tech Strategist letter in Nashua, N.H.

What does gold have to do with tech, or vice-versa? Exactly the point: The metal -- which hit another record high on Friday, up $6.40 to $1,095.10 an ounce -- is finding fans among investment pros far afield from the corps of the eternal gold bugs.

Hickey actually has been bullish on gold since at least the start of this year (which means he benefits if he can talk up the price further), but in his latest letter he suggests that the groundswell of interest in the metal is just gaining steam. He believes that interest is being driven by "a loss of confidence in the U.S. dollar and U.S. government policies around the world."

ZeroHedge blog excerpts some of Hickey’s comments from his letter:

"The psychological barrier of $1,000 gold has been broken. That $1,000 number might as well be $100. There is no longer a limit to the upside. . . . I doubt that what we're seeing is the final blow off. I have no idea when it may come. It could be months or years from now. I just know that it hasn't yet occurred. In the meantime, prepare yourself for a lot more company (besides the smartest of the hedge fund managers) and more head-fakes. In the end, the public will come in en masse. They'll also be buying gold stocks with abandon. That is clearly not the case today.

"Gold is no longer being driven by jewelry demand, as in the recent past. It is investment demand that's wagging the yellow dog's tail. It's a loss of confidence in the U.S. dollar and U.S. government policies around the world that's driving gold to record levels. As it has been for thousands of years, gold is the safest store of wealth, not so much something to be fashioned into a necklace."

Because gold pays no dividends or interest, for many investors a bet on the metal is simply a momentum trade -- a bet that many other people will be willing to pay higher prices to own it.

That bet has worked for nine straight years, since gold traded at $274 at the end of 2000. Hickey and other bulls believe that, before this run is over, the ranks of gold investors worldwide will expand dramatically. It may not be early in this game, the bulls say, but they're also sure it's not too late.

-- Tom Petruno