Is gold rush the latest tulip bulb frenzy?

Investors are accumulating enough bullion to fill Switzerland's vaults twice over as gold's most- accurate forecasters say the longest rally in at least nine decades has further to go no matter what the economy holds. Analysts raised their 2011 forecasts more than for any other precious metal the past two months, predicting a 10th annual advance, data compiled by Bloomberg show. The most widely held option on gold futures traded in New York is for $1,500 an ounce by December, or 18 percent more than the record $1,266.50 reached June 21. Holdings through bullion-backed exchange-traded products are already at more than 2,075 metric tons, within 0.1 percent of the all-time high. “Either a swift economic recovery or further dismal economic performance should bring new buyers into the market,” said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt who was the most accurate forecaster in the first quarter and expects the metal to rise as high as $1,400 next year. “A stronger economy would create more jewelry demand. If the economy stays weak or gets worse, then investors will be looking for a safe haven.” But others aren't so sure. Astor Asset Management LLC, with about $570 million of assets, once had as much as 10 percent of its holdings in the SPDR Gold Trust, the largest ETP backed by bullion according to Bryan Novak, managing director of the Chicago-based company. The firm sold the stake at the end of last year for a profit and now owns silver, copper and a multicommodity ETP. “We don't believe we're heading into a double-dip recession,” Novak said. “Gold carries some risk because a lot of people are piling into the trade.” A plunge in equities may spur investors to sell their gold holdings to raise cash, he said. The Standard & Poor's 500 Index dropped 14 percent since this year's peak on April 26. Nevertheless, investors added to their gold holdings through ETPs for three consecutive weeks. Indeed, buyers accumulated almost 278 tons of gold in 2010 across 10 ETPs tracked by Bloomberg, worth $10.4 billion at this year's average price. Total holdings are almost twice Switzerland's official reserves of 1,040 tons, data compiled by the World Gold Council show. ETP holdings reached a record 2,078 tons July 19, data compiled by Bloomberg show. One of the biggest buyers has been Soros Fund Management LLC, which oversees about $25 billion. But at the World Economic Forum's January meeting in Davos, Switzerland, George Soros. described gold as “the ultimate asset bubble” Buying at the start of a bubble, he said, is “rational.” Maybe so. But the gold rush is no longer in its early stages. Even Soros and and his Soros Fund Management sold 341,250 shares of the SPDR Gold Trust, the largest ETP backed by bullion, in the second quarter, according to an Aug. 16 Securities and Exchange Commission filing. That still left a holding of 5.24 million shares, equal to almost 16 tons. Soros declined to comment on the change, through a spokesman. Accurate Forecasters The dramatic run up in the price of gold raises the question: is the 'ultimate asset bubble' going to burst anytime soon? The history of finance is littered with investment frenzies gone bust, including the tulip bulb panic in Holland in the 1630s and the housing crash in the U.S. in 2008. Still, gold bugs and analysts say the run-up in gold still has a ways to go. Gold may rise as high as $1,500 next year, 21 percent more than the $1,235 traded at 9 a.m. in London, according to the median in a Bloomberg survey of 29 analysts, traders and investors. Dan Brebner, an analyst at Deutsche Bank in London who is the most accurate forecaster so far this year, says the metal may reach $1,550. People “fear another crisis and so they will diversify into gold,” said Thorsten Proettel, an analyst at Landesbank Baden-Wurttemberg in Stuttgart, Germany, who was also the most- accurate forecaster in the first quarter. He expects gold to trade as high as $1,350 next year. Anne-Laure Tremblay, an analyst at BNP Paribas SA in London whose forecast was also the best in the period, is estimating a 2011 high of $1,370. Bullion's four-fold rally since the end of 2000 has attracted fund managers Eric Mindich and John Paulson. Mindich's $13 billion Eton Park Capital Management LP bought almost 6.58 million shares of the SPDR Gold Trust in the second quarter, according to an Aug. 16 SEC filing. That's equal to about 20 tons of gold. Paulson & Co., managing $31 billion, held 31.5 million shares in the SPDR Gold Trust, making it the largest investor, an Aug. 16 SEC filing shows. While growth may curb investors' appetite for gold to protect their wealth, it may also bolster purchases of jewelry, reviving demand that fell to a 21-year low in 2009, according to Jochen Hitzfeld, an analyst at UniCredit SpA in Munich and the best forecaster in the last three quarters. He's predicting a 2011 high of $1,350. More Bullish Analysts are getting more bullish. Their median estimate for next year's average gold price climbed 5.7 percent since June 16 to $1,242, according to 17 forecasts compiled by Bloomberg. That compares with a 2.6 percent gain in silver forecasts, 0.3 percent advance in platinum predictions and a 4.2 percent jump in their palladium outlook. Gold averaged $1,166.37 since January, heading for a ninth consecutive year of higher average prices. That's the longest streak since at least 1920. Options traders are also betting on prices rallying. The biggest position is in call options expiring in November 2010, giving traders the right to buy the metal at $1,500 by then. The next biggest position is the call option for $2,000 expiring in November 2011, data from the Comex exchange in New York show. “Investors' interest is still growing and still hasn't reached a reasonable part of their portfolio,” UniCredit's Hitzfeld said. “Gold is still an under-owned asset, that's perfectly clear.” Under-owned or overhyped? Only time will provide the answer.