BULL markets are supposed to make investors feel good. But the latest surge in the price of gold has an aura of dread about it.

The yellow metal is nearing a lofty US$850 an ounce, a height not seen for 28 years.

That has triggered some primal fears on Wall Street. If investors are turning back to one of the most ancient forms of money, one implication is that they are losing faith in the modern financial system.

Indeed, the higher gold goes, 55-year-old Bill Roberts of Westchester, California, says he can't help but see a deepening message of doom.

The US dollar is sinking, banks are reeling from soaring mortgage defaults and the stock market is tumbling anew, with the Dow Jones index slumping 552 points last week.

With that backdrop, Mr Roberts says he is happy that he has most of his investment portfolio in shares of gold-mining firms.

'I see gold as one of the things that can save a small investor like me,' said Mr Roberts, a retired attorney. He predicts the metal's price could jump above US$2,000 an ounce.

Many veteran precious-metal investors, however, prefer not to play the apocalyptic panic card to promote gold these days.

'It brings up the 'gold-bug' image: old guys in threadbare suits, with wild tufts of hair, jingling Krugerrands in their pockets,' says Thomas Winmill, who manages the New York-based Midas Fund, which owns mining stocks.

Mr Winmill wants the metal to be viewed simply as another element of a diversified investment portfolio - not a haven for the End Times.

Even so, gold's rally in recent months to 1980s levels is bringing back some awful memories of that era: galloping inflation, double-digit interest rates, a collapsing dollar and a general mood of despair about America's future.

In New York on Friday, gold closed at US$832.50 an ounce, down US$2.70 for the day but up US$27 for the week. The price is closing in on the record high of US$850 set in January 1980.

Adjusted for inflation, the metal is far from the old peak. It would have to rise to about US$2,200 in today's dollars to match it, according to the World Gold Council, a mining industry-funded group.

Gold has been in a mostly steady uptrend since 2000, when it sold for about US$275 an ounce at year's end. Its advance has coincided with a boom in commodity prices in general, as demand for raw materials has soared in burgeoning economies such as China and India.

Dollar's plunge

Rising consumer wealth in those and other emerging markets also has stoked consumption of precious metals. More than two-thirds of gold demand worldwide is for jewellery.

Many mainstream investors paid little mind to gold in the past few years, as the stock market continued to rally and rising home prices underpinned consumers' net worth.

But in the past three months the metal's hot streak has stood out against a deteriorating outlook for the US financial system and economy. Record oil prices are triggering fear of higher inflation.

And the dollar's value is plunging - a casualty, some experts say, of global investors' dimming view of the United States' economic prospects amid a horrendous national housing bust.

'The markets' statement is that the US has lost its way,' said Allen Sinai, head of Decision Economics Inc in New York.

So gold, experts say, is back in the role it has played for thousands of years: a store of value, a way to preserve wealth and a hedge against financial calamity.

Robert Fazio, an executive at Santa Monica, California-based gold coin dealer Goldline International, says many customers who are coming in to buy coins such as the US government-minted American Eagle mention their concern about the dollar's plummeting purchasing power worldwide.

'The hot buttons are the falling dollar and the lack of faith in the dollar,' he said. 'It's definitely waking people up.'

But as gold rockets, investors who were there for the metal's last bull market are reminded how fast it was over once the price began to rise almost vertically.

Gold's spike above US$800 lasted all of a couple of days in mid-January 1980. By the end of that year the price was back below US$600.

Then began a 20-year period of mostly falling prices. By mid-1999 an ounce of gold went for about US$250 - a 70 per cent loss to someone who bought at the 1980 high and held on.

What quashed the last gold bull market was action by the Federal Reserve in 1979 to dramatically raise interest rates, dealing a fatal blow to the inflation mentality of that era. Once the US economy began to recover in the early 1980s, stock and bond markets boomed and investors found better places for their money.

That continued in the 1990s. And the world's central banks added to the downward pressure on gold by periodically selling off some of their massive reserves. Gold went from laggard investment to bad joke.

The long bear market left many long-time fans of the metal chastened, said George Milling-Stanley, chief analyst at the World Gold Council in New York. That was particularly true for gold bugs in the end-is-near camp, he said.

'They cried wolf for 20 years. People learned to ignore them,' Mr Milling-Stanley said.

Mr Winmill, the Midas Fund manager, says any number of forces could trigger a plunge in gold's price this time around. A pullback in oil prices could easily do it, he said.

So could a sharp rise in interest rates if the Federal Reserve and other central banks decided that the inflation threat warranted tighter credit, Mr Winmill said.

A turnaround in the US dollar's slide, for whatever reason, also could cool gold fever in a hurry, he said.

Client base

Larry Heim, who has been running a gold investment-advisory business from Portland, Oregon, since the early 1970s, says his client base has doubled in the past year.

But Mr Heim, who predicts that gold will reach about US$3,400 in this run-up, says he doesn't tell his investors that the metal's bull market will last indefinitely.

'It's not the right thing to own forever. It will be the right thing to own for the next few years though,' he said.

Yet many individual investors say they still can't bring themselves to add gold to their portfolios, either in the form of coins or through mutual funds that own the metal or mining stocks.

'To make money on your investments in the long run, I think you need to own a piece of a growing economy,' said Byron Angel, 54, of Tacoma, Washington. 'To me this means buying the stocks of companies that are leading the growth of the economy.' - AP