(MoneyWatch) Last July, Merrill Lynch predicted gold would hit $2,000 an ounce by the end of the year. Money manager Peter Schiff has predicted gold will hit $2,300 by next year and within a few years hit $5,000. These kinds of predictions seem to be driving investor interest in gold.
It’s no surprise that so many investors pay attention to such forecasts, despite all the evidence that there are no good forecasters. It’s also no surprise that gold seems to defy one of the basic laws of economics as the investment demand for gold has increased along with its price. Prior to 2003, when gold was under $300 an ounce, I don’t recall any investors asking if they should include an allocation to gold in their investment plan. Yet today, after a more than five-fold increase, it’s one of the most frequent questions I get. In fact, a CNBC survey from last year showed that gold was most often cited by investors as the “best investment,” topping even real estate and stocks.