Gold rush

There is a supposedly safe harbour in this market maelstrom: gold. The dollar's decline, combined with fears that central banks are not fighting inflation as hard as they should, means that the price of bullion is now trading near a record high. Unless there is more clarity and stability in markets, gold should surpass 850 dollars per ounce this year, the record high it achieved in 1980.

"When the world goes to hell, people go to gold," Thomas Winmill, the portfolio manager of Midas Fund (MIDSX), told Forbes.com two weeks ago. Gold spiked in 1980 when the future of the US economy and US power felt precarious. Investors bought into the metal on high inflation yoked to strong oil prices, Soviet intervention in Afghanistan and the impact of the Iranian revolution.

A weaker dollar makes gold cheaper for other currency holders and often lifts bullion demand. The dollar has reached new lows against the euro, weighed down by expectations of further US interest rate cuts, which are tarnishing the currency's appeal to global investors.

Goldman Sachs raised its three month gold forecast to 775 dollars per ounce from an earlier prediction of 700 dollars on expectations that the dollar will weaken further. It saw prices at 800 dollars in six months, up from an earlier forecast of 715 dollars.

Caveat emptor?

The graph also shows how quickly buying hysteria subsided and turned into a selling panic after emotions calmed and rationality returned. A 22-year bear market in gold immediately followed the all-time peak in 1980. Some analysts worry that gold could be overbought, limiting the metal's near term upside potential. One UBS analyst thinks US dollar weakness will see gold hit 750 dollars per ounce within three months, but linger at that price for some time.