IT MIGHT BE a new year, but it seems there is no change in last year's dominating trend. The US dollar plummeting against a range of currencies and gold effortlessly taking out new multi-year highs.
It seems a long time since we heard the familiar refrain - a flight to quality and the US dollar - in the same breath. Gold bugs, or bulls, have long been a breed apart, as unfashionable as fanatical in their belief that gold will be the next big thing.
A series of false dawns during two long decades of gold-price falls in the 1980s and 1990s meant their faith was sorely tested. The second coming, however, was sweet as gold has now risen 65 per cent in the past three years.
Gold bulls are happy, but tell us this is only the beginning of a long-term rise as US-dollar assets are increasingly shunned. And with the yellow metal at a 15-year high of US$428, financial advisers are joining hedge funds in recommending this new asset class.
Some sceptical commentators inevitably urge caution. A supply-demand imbalance could still reorder gold's advance. Another potential wild card is the possibility of large sales by central banks. For now, an Opec-like agreement sets certain limits on gold sales, but it will have to be renewed before September.
What could upset the perceived supply-and-demand status quo is renewed interest in gold as an investment.
Gold is still different from most other commodities (silver excepted) in that its demand can include a currency dimension due to its ability to act as a store of value. The past two years have seen a strong inverse relationship develop as each fall in the dollar has been matched by gold gains.
