GOLD is supposed to be a destination for scared money, but as the credit crunch intensified last month, this presumed haven lost value along with many other assets. Only after the worst of the crisis had passed did traders return to gold, sending its price sharply higher.

The metal has gained about $80 an ounce, or 12 percent, since mid-August, around the time the stock market reached a trough. While share prices have since had ups and downs, gold's ascent has been nearly uninterrupted.

This strength heralds further gains for physical gold and for shares of mining companies, many analysts and fund managers predict. They offer a variety of reasons, ranging from a desire to hedge against a falling dollar, a weaker economy or geopolitical instability, to a conventional, Econ 101 imbalance of supply and demand. The bullish consensus, and the abundance of factors invoked in reaching it, result from an oddity of the gold market: it thrives on uncertainty, and investors, even authorities on commodities, are uncertain what makes it tick. “What is unsatisfying about gold is that there is no single easy explanation for why it moves either up or down,” said Fred Sturm, manager of the Ivy Global Natural Resources fund. “There are a number of elements that impact the price direction.”

Stuart Schweitzer, global market strategist at JPMorgan Private Bank, is another who finds gold a head-scratcher.

“If there’s a rule where gold is concerned, it’s that it doesn’t trade predictably,” he said.

That was the case last month, when gold failed to rise along with anxiety about the availability of credit, as might have been expected. Instead, it fell about $50 an ounce from late July to mid-August, a result of selling by hedge fund managers.

Gold is an asset coveted as a hedge against risk, but these mostly unregulated and highly leveraged funds acquired large positions, using the substance as a tool for speculation. When other markets on which they had made big bets turned bad — subprime mortgages, for instance — the funds were forced to sell gold, among other holdings, to raise cash.

“There has been a lot more leveraged money in gold over the past few years, compared to history,” Tony Lesiak, a gold analyst for UBS, said in a note to the bank’s clients. “So when we get financial market risk aversion, the same investors who are cutting long equity, long credit and long emerging-market positions also cut back on gold.”

Now that hedge fund selling has abated, a serious impediment to higher gold prices has been removed, advisers contend. Another reason to expect further gains, even with gold now at $731.50 an ounce, close to its highest price since 1980, they say, is that little further supply is likely to come to the market.

Central banks, mainly in Western Europe, have been selling gold from their reserves as they diversify into other assets, and are thought to be nearly done with those sales. Supplies from mines rose a mere 3 percent last year, while another usual source of supply, scrap, fell 27 percent.

There is plenty of demand, meanwhile, from the flourishing middle classes in China and India and, says John Hathaway, manager of the Tocqueville Gold fund, from central banks in countries that have enjoyed gains from foreign trade, like Russia, the Persian Gulf states and, again, China.

Then there is the risk-aversion play. Hedge fund sales masked demand that might have arisen in the subprime crisis, but analysts expect a demonstrable resumption of flights to safety if the dollar keeps falling, credit conditions worsen, political hot spots ignite or if some other bad event occurs that they can’t yet envision.

Gold is “an asset that people want to own as protection for risks they can’t really analyze and get their arms around,” said Mr. Schweitzer at JPMorgan. “That risk has gone up.”

If investors buy the arguments for gold, they must then decide how to buy access to it. They can acquire the physical metal, but that entails costs for storage to guard against theft and the hidden cost of holding an asset that does not pay interest or dividends.

A way to mitigate the first expense is to buy an exchange-traded fund like the StreetTracks Gold Trust, the largest of several E.T.F.’s on the New York Stock Exchange that hold bullion in quantity so that storage costs are spread thin.

The main alternative to physical gold is shares of mining companies. They have failed to keep pace with bullion over the last year, and fund managers and analysts have no trouble explaining why. As Mr. Sturm summarized it, gold mining “is a pretty lousy business.”

The costs of energy and the chemicals used in mining tend to rise along with the metal, so company profits are prone to rise more slowly than the price of gold, he noted. That makes gold one of the less-rewarding substances to produce during a commodities boom.

“Very few gold producers are beating their chests, bragging about how much free cash they’re generating,” Mr. Sturm said.

Though he finds gold mining “a tough gig,” his expectation of higher gold prices and lower input costs has led him to increase holdings of mining stocks. He tends to favor companies with mines in politically stable countries and with enough ore in their reserves that it would take a decade or more to extract it all.

His favorite example is Gold Fields in South Africa. Its stock became very cheap, in his view, as its price fell from $26 in the spring of 2006 to $14 last month as the price of bullion showed little net change.

Mr. Sturm’s eclectic list of choices includes Agnico-Eagle Mines, a smaller Canadian company that he expects “will probably have some brand-spanking-new gold reserves coming at a time of rising prices.” For investors interested in mixing their metals, he likes Impala Platinum in South Africa and Silver Wheaton, an American company that provides financing for silver mines around the world in exchange for interest and royalty payments.

Echoing Mr. Sturm’s thinking, Mr. Lesiak at UBS has buy ratings on Agnico-Eagle and another Canadian company, Goldcorp, in part because the bulk of their revenue is generated in placid locales. John Hill, a gold analyst at Citigroup, advises buying Barrick Gold and Newmont Mining.

Mr. Hathaway of Tocqueville Gold also counts Goldcorp and Gold Fields among his selections. Others include Ivanhoe Mines, a Canadian company developing a large mine in Mongolia, and Randgold Resources, which he said is “run by a very smart group of people in West Africa.”

But he sees many mining companies as poor investments. “Their main product is going up in price, and they can’t transfer it to the bottom line,” he said.

He said he was “beginning to see signs of intelligence” from a variety of companies on allocating capital, and predicted that profit margins “should come out of this funk they’ve been in.” That may make it more worthwhile to own the stocks than the metal now, but he stressed that investors should buy mining shares in spite of what happens in the boardroom, not because of it.

“There is only one reason to buy gold stocks, and that’s because you think the gold price is going up,” he said. “It’s not a growth industry.”

The New York Times - September 28, 2007