Durable Gold's Hold for Long-Term Investors

Reuters, Nick Olivari

Gold has hit record highs this year even as a double-dip recession threatens the global economy and governments everywhere are taking action to rein in spending after binges following the 2008 financial crisis.

Austerity and economic slowdown hardly seem like strong arguments for buying an inflation-sensitive precious metal.

Still, gold bugs are bullish as ever. And some are predicting the metal will rise to $2,000 an ounce over the next year, nearly a third above the present level.

"The reasons for buying gold haven't diminished," said Jeff Clark, the Sacramento, California-based senior precious metals analyst for Casey Research. "Unless we change course of how we handle the debt and deficits, there is a good reason to buy gold."

The pervasive bullishness stems from lessons learned in the financial crises of the past decade.

Gold does have staying power during big fiscal dramas and financial meltdowns. Discredited as a serious investment during the stock market boom years, it's regained its shine at the worst of times over the past decade. It's especially attractive when the dollar declines, as it has been wont to do in the current era of fiscal imbalances.

Skeptics have called for a pullback at regular intervals—and still it stands tall: Gold has appreciated 500% since mid-2001, a 17.5% annualized return. The top-performing U.S. mutual funds of the past decade had invested directly or indirectly in the metal which Cortes carried back from the New World by the boatload.

A deepening budget crisis in Washington has gold sailing high again in some buyers' dreams. The reason? A budget crisis could trim the currency further. Gold's strength comes largely from the erosion of the dollar, which has lost 37% of its value since its last peak in mid-2001.

And investors haven't missed the boat.