It’s difficult to explain gold prices

Gold is hovering near 17-year-highs. What that means depends on who’s doing the interpreting.

According to one school, demand from China and India is pushing the price higher, but another school insists gold is up because Western investors are convinced inflation is much higher than their governments admit.

Gold has always been the investment of choice for bomb-shelter-building doom-and-gloomers, those accumulators of canned goods whom everyone avoids at family gatherings. As an asset, gold usually behaves according to its own set of rules. Gold rises with oil prices, falls when the dollar rises and increases when inflation fears intensify.

It’s considered a “safe haven investment” – should your currency become worthless, your gold will retain value.

“For many years, financial advisers would tell individuals to put a certain percentage of their portfolio in precious metals,” said John H. Hill, Citigroup’s metals and mining analyst. “It’s portfolio insurance. If you own gold, physical gold, it’s just a hedge on everything else.

Inflation is one reason Hill expects gold to hit $500 an ounce in coming months.

“We regard gold as an essential barometer in the grand battle between hard and financial assets,” he said.