Precious metals have always been intriguing to investors because they tend to hold their value. In times of geopolitical crisis or currency devaluation, for example, the value of paper money might fluctuate, but a hard asset will always be worth something. As a result, historically, precious metals have been considered a “safe haven” in times of economic and financial instability.

That brings us to why gold is on a tear today. It declined in 2008 and early 2009 as panicked investors rushed into cash in an attempt to weather the financial crisis. But sometime in the middle on 2009, when investors began to move their money from the sidelines, gold started to rally. It returned 32.59% through the third quarter of 2009, vs. 19.26% for stocks.

The question is, where can we expect gold to go from here? In order to predict whether gold prices will skyrocket or come crashing down, it’s important to understand the principal factors that affect the price of any commodity: supply and demand.

The supply side of the equation is not particularly relevant in regard to gold because gold supplies remain fairly constant. That’s because production has not significantly increased due to a lack of new mining sites. Should supplies increase, however, investors may want to be cautious.

The demand side of the equation, then, is the one gold investors must look at. And as we noted above, demand for gold tends to increase when investors have a lack of confidence in the U.S. economy and financial markets.

That’s certainly the case today. In fact, we see two factors, that could lead gold to outperform in the near future: inflation and currency devaluation. In response to the financial crisis of 2008 and 2009, the Federal Reserve injected massive amounts of liquidity into the money markets. Ultimately, that increase in the money supply could devalue the U.S. dollar and lead to inflation. In fact, the U.S. dollar is already shockingly low. On October 14, 2009, it fell to a 14-month low against the euro, hitting $1.4947, the weakest since August 2008, according to Bloomberg. And while inflation is not yet a problem, economists are on the lookout for it.

These conditions led Standard & Poor’s (S&P) to raise its gold price assumption for 2010 from $750 per ounce to $800 per ounce. “Investors seeking a hedge against inflation risks and uncertainty in the financial markets continue to support gold prices,” the S&P analysts write. “The metal’s properties as a safe haven, and to a lesser extent the demand for jewelry, also support its longer-term price prospects.”

S&P’s estimate, however, may be on the low side. As of November 2009, gold was trading at more than $1,000 per ounce. And since gold exceeded $1,000 per ounce level, the price has been extremely resilient, with no meaningful pullback seen. There have been periods of profit-taking, but increased demand quickly appears on any weakness in price.

In sum, then, good old-fashioned gold fever is back—and investors who are looking for a promising trend may want to consider investing in it and other precious metals.

But don’t consider gold an investment only for troubled times. One of the greatest advantages of precious metals exists regardless of economic and market conditions. Precious metals tend to perform differently from other assets. As a result, investing in precious metals may be a good diversification strategy for a portfolio comprised mainly of stocks, bonds and real estate—in all environments.

This article was written by OilPrice.com – who offer free information and analysis on Energy and Commodities. The site has sections devoted to Fossil Fuels, Alternative Energy, Metals, Oil prices and Geopolitics. To find out more visit their website at: http://www.oilprice.com

I give them out to my friends and family, and explain that they need to protect themselves against inflation. They get a real kick out of it and this opens their eyes to the fact that paper money is not backed by anything.

Zimbabwe’s annual inflation rate peaked at 489 billion percent in September 2008 and the Zimbabwe dollar became literally worthless.

Will America ever experience this type of inflation? I don’t think so… Our government has maintained steady price controls for over 30 years.

However, the U.S. could see inflation levels like we saw in the 1970s and we could easily experience 10% to 20% inflation rates or more…

Recently, America’s Federal Reserve has been easing, or decreasing interest rates, in an attempt to restart economic growth and get out of this recession. But, it’s the Fed’s main job to keep inflation in check. If inflation goes too high they will tighten, or increase interest rates in an attempt to head off future inflation.

We know inflation is coming due to massive federal spending—and next will come higher interest rates. Keep in mind that interest rates hit 18% in the 1970s, under similar circumstances.

High inflation and high interest rates both have negative consequences for the economy. The bad thing about high inflation is that it takes away your purchasing power. Then you have inflation’s evil side kick-higher interest rates, which slows down economic growth.

We are entering a tricky period and you need to be prepared. Invest in commodities and make sure to lock in that 30-year fixed rate mortgage at today’s low 5% rate.

Source: Pick Your Poison: Inflation or Higher Interest Rates

On the edge of this fertile farmland, and in the middle of one of the biggest booms in farm prices in history, the politicians in Buenos Aires have achieved what might have seemed nearly impossible – they have created a crisis in the agricultural sector. “Day 20. The strike continues: farmers reject government’s nine new initiatives,” says the headline on La Nación.

But farm problems are not limited to the pampas. Thanks to globalisation, they’re sprouting everywhere. “Fears grow over rice crisis,” is the front page story at the Financial Times. “Silent famine sweeps the globe,” reports WorldNet Daily. Thirty-three nations face “unrest” because of food shortages, says the IMF.

All over the world, food fights are breaking out. Not because there is too much food or too little, but because it has gone way up in price. Of course, you could put that another way: the paper money in which food is priced is going down faster than usual. There’s no less food than there was five years ago. But there is a lot more paper money. Modern central banking was invented so that we should have paper money – and have it in abundance. Now, we have so much that it is causing food prices to soar.

But food is hardly in a class by itself. When one bubble pops, the authorities immediately begin pumping up another one. After the dotcom bubble deflated in 2000-2001, up came even bigger bubbles in residential housing and the financial industry. Now, both housing and finance are losing air. But the central banks are still pumping hard. Where’s the air going? Apparently, into commodities. In other words, worldwide inflation of food prices is a monetary phenomenon, as Milton Friedman might put it, not an agricultural one.

To show you the scope of the phenomenon, we pull out a copy of The New York Times from 19 October, 1896. There, it is recorded in black and white that the average wheat price was about $1 a bushel – in gold – during the previous 20 years. An ounce of gold would buy you 20 bushels of wheat. Today, you can buy a bushel of wheat for about $12, which means an ounce of gold will buy about 75 bushels of wheat. In terms of real money – gold – the price of wheat has gone down for more than 100 years. In other words, however fast farmers have added to the world’s wheat output, central banks have outdone them, planting far more acreage in paper money.

And now that governments have caused a crisis, they are hard at work making it worse. In Argentina, the farmers are few; city dwellers are many. Argentina’s Peronistas can do the maths. They make out the farmers – historically patrician landowners with large holdings – to be greedy and insensitive. The politicians imposed a 49% windfall tax on foreign sales. The measure should lower prices for Argentine consumers and raise money for the government, they reasoned. It seemed like a no-brainer. That is, until the Gauchos blocked the roads into Buenos Aires and threatened to starve the city.

In America, the maths is different, but the result is equally imbecilic. There aren’t many farmers out on the prairie, but in Washington there are more farm-state US senators than pigs. They push and shove up to the taxpayers’ trough to get huge subsidies for their hometown campaign donors – lately, in the form of bio-fuels. Corn-fed ethanol may make no sense in environmental or energy terms, but it lubricates the big wheels of national politics. In the event, it takes a third of the US corn crop out of the food chain and puts it to use in the drive train – further driving up grain prices. With bread prices on the rise, politicians feel compelled to intervene. And every intervention falls upon the crops like a cloud of locusts.

Last Friday’s 10% spike in rice prices came as governments moved to corner the market. Three billion people, many of them with very marginal incomes, eat rice every day. The price of rice rose 50% in the past two weeks, causing Thai farmers to sleep in their fields to protect their harvests, while the Philippines posts armed guards at its granaries. Vietnam, India, Kazakhstan and China have all restricted foreign sales. The exporters are coming under pressure to export less – in order to lower prices at home. The importers, meanwhile, have no choice but to try to get as much of it as possible, as soon as possible, in order to head off shortages. Result: a run on rice.

India’s trade minister warned hoarders: “We will not hesitate to take strong measures…” Of course, hoarding is exactly what a smart family should do. Most likely, there will be runs on other commodities, too – and then a run on gold itself. People will want something real… something sure… something with which they can buy rice, without having to worry about it doubling in price two weeks later. That something, traditionally, is gold.

Hoard it now, while you still can.