As financial experts have been predicting for the last several months, gold futures are heating up on rising inflation costs.

Gold became highly attractive to investors in the last 30 days, surging to peak price levels in reaction to news that consumer prices increased at a much higher pace in May than the previous three years.  Retail prices were dragged down by auto sales slumps, which, coupled with the rising costs of oil and the ongoing unrest in the Middle East, have impacted the pace at which consumers pull out their credit cards and or make big-ticket-item purchases.  If food and gas are too expensive to justify those airline tickets or the price of a new car, imagine what they are doing to the stock market?

According to US Bureau of Labor Statistics, core inflation excluding energy and food costs increased by 0.3 percent in May, compared to only an increase of 0.2 percent in April and the uptick represents the highest increase since July 2008.  Gold futures, by turn, that is those in contract for August delivery gained 0.5 percent to 1,533.25 per ounce on the New York Mercantile Exchange during the week of June 12.

Gold is a precious metal directly correlated with inflation activity and investors who choose to invest in gold as part of their hedge strategy against it. Considering the current rate of inflation, many analysts are now anticipating the price of gold to hit $1,600 per ounce by 2012.  Currently the price is at $1,5000 per ounce, up from an average of $500 five years ago, according to Live Wire Financial, an online investors’ blog.

Another factor that contributed to appreciation of gold prices, according to live Wire, was the rising strength of the U.S. dollar.  The dollar index DXY which measures the US dollar’s performance versus its six major rival currencies surged 0.93 percent to 75.50 on Wednesday.  This is good news for those traveling abroad, where the dollar’s weakness, coupled with bloated energy and fuel costs have made the price of traveling a luxury sport for wealthy rather than a middle-class activity.

It’s not just gold that has investors’ attention.  According to Live Wire, among other base metals, silver futures contract for July delivery gained 0.35 percent to $35.56 per ounce whereas Copper futures contract for July delivery slipped 0.23 percent to $4.148 per pound.

Precious metals mutual funds are increasingly surfacing in average investors’ portfolios.  Why?  Because precious metals funds are diverse and widely available, although mostly they contain stocks in mining companies.  A highly diversified fund is usually a good bet, and more and more often lately you’ll find investors switching their fund “mixes” to include precious metals.

If your portfolio manager, that is your personal investment advisor or that of your company’s mutual funds has chosen a balanced variety of stocks and bonds that work well together, you’re better protected when economic turmoil shifts the value of your fund.  But diversification, in this case, adding gold and other precious metals to the fold means that if one stock plummets, several others should perform well and keep the fund's earnings stable.
Whether you invest in semi-numismatic coins, which contain precious metals, or bold bars or “bullions,” as they are called, you have to remember that, as is the case with all investments, gold is subject to market shifts and there is always the potential of risk.  Yet, most investment advisors support the gold rush despite risk of prices falling or hitting a “bubble.”  They especially note the value of adding gold to the mix of a mutual fund, which reduces risk.
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