The above chart is a simple summary to show you that there are many factors that can drive gold prices upward. At any given time one or more of these scenarios can be observed, but in 2006, each of them is exerting an influence.

Fear of slowing global GDP.

While the global economy is growing, the pace of that growth has slowed compared to 2005. Many economy watchers believe GDP growth may slow even further next year due to inflationary pressures from high energy prices, commodity prices and other factors. When inflation is a worry, investors turn to gold as a hedge. In early 1980, when gold reached its historic high of $850 an ounce, the U.S. was enduring double-digit inflation, largely due to high oil prices.

There is also a concern about negative real interest rates, which occurs when the inflation rate exceeds interest rates. When this happens, purchasing power is eroded and confidence in paper currency falls. Gold, as a hard asset, has and will always have an intrinsic value that paper money doesn't have. It is the most reliable financial safe haven.

Oil Exporters.

Oil-exporting countries took in more than $800 billion for their production last year, and so far prices have been higher in 2006. This bounty is shared not only by the OPEC nations, but also Russia, Norway, Mexico and other countries. The International Monetary Fund estimated a 2005 trade surplus of up to $400 billion for these oil exporters, well more than double the level in 2002. The U.S. Dollar is the primary currency used in the oil trade, so exporters are accumulating vast quantities of dollars.They use much of that surplus to buy U.S. government debt, but they are also diversifying by spending an increasing amount on gold. Late last year, Russia said it may double its gold reserves to 10 percent of its overall reserves. This announcement helped the price of gold quickly climb to $500 an ounce.