By Tim Middleton

Until recently, gold had been a lousy investment for a long time.

Now a combination of factors, including a weakening dollar, are aligning to drive gold’s price higher.

Does that mean it’s too late to join the gold rush? Hardly. And these days it’s easier than ever to invest in gold. Though gold-focused mutual funds used to own mostly companies involved in mining gold, there are now funds that own bullion itself, including the popular StreetTracks Gold Shares (GLD, news, msgs).

StreetTracks Gold has enjoyed an 8% price advance this year, as of April 23, with the majority of that coming in the past month. Its assets have ballooned to $11 billion from $9.26 billion at the end of 2006.

StreetTracks Gold is a great place to park money that’s burning a hole in your pocket, and it’s a thrifty insurance policy against financial calamity. Stocks and bonds are priced to perfection now, vulnerable to bad news in this bad-news world.

This exchange-traded fund, or ETF, is a safer step into gold investing than mining stocks or the mutual funds that own them. Stocks are highly leveraged against the price of gold and thus rise and fall much more than the metal itself. You can be right on the direction of gold’s price and still lose with mining stocks.

A change of mind

Longtime readers will know that I have held the yellow metal in low regard, except as jewelry. About a year ago, when its price was spurting higher, I declared the party over. I predicted the price would settle around $560 an ounce.

Instead, within a few weeks, it surged to more than $700 an ounce. A month after that, it fell back to $560, and I felt vindicated. But today it’s closing in on $700 again, and this time I’m surrendering. Here’s why:

Gold’s fundamentals are strong. Two of the world’s largest producers, Newmont Mining (NEM, news, msgs) and Barrick Gold (ABX, news, msgs), reported sharp earnings gains in February, but both warned of slowing production due to increased operating costs. “Energy costs are up. Labor costs are up. Ore grades are not as rich as they used to be,” says Douglas Groh, a senior analyst for Tocqueville Gold Fund (TGLDX).

Meanwhile, demand is surging. Markets such as India and China, where gold ownership has largely been confined to jewelry, are easing barriers against investing in bullion. Oil-rich nations are beginning to shift reserves from U.S. dollars to the euro, which is bumping up against a record value versus the greenback.

That weaker dollar is another reason gold, a traditional store of purchasing power, is gaining ground. The increase of its price has been less pronounced in other currencies.

Watching the charts

Fundamental factors aren’t the only ones influencing the gold market. What professional investors call “technical factors” are very compelling. Since last summer’s correction in the price of bullion, gold has established higher highs and higher lows.

The price of StreetTracks Gold, which represents a 10th of an ounce of the metal, rose from $57 last October to $63.50 in November. It retreated to a low of $60.17 in January, then rose to $67.72 in February. Again it declined, but only to $63.56, and since has spurted to more than $68.

Significantly, gold’s most recent dip ended precisely where the price met its 50-day moving average — what technicians call intermediate support. It did so on a big increase in volume.

What technical analysis describes is investor sentiment — emotion — and the sentiment for gold is strong.

The real thing

Usually, significant increases in the price of gold bullion are anticipated by gold shares three to six months in advance. That didn’t happen this winter and early spring. The prices of shares and bullion have moved together.

Groh says that is a demonstration of the raw market power that StreetTracks Gold has seized. It has become the investment of choice among gold’s fans.

As noted, gold stocks are much riskier than the metal. Miners have enormous expenses and therefore often hedge production by selling future output at today’s prices, foreclosing future gains.

Owning bullion directly, rather than through an ETF, isn’t practical for individuals. We would have to pay to transport and store the metal, costs which for us would be significant but, on an ETF’s vast scale, are trivial.

StreetTracks Gold has a competitor, iShares Comex Gold Trust (IAU, news, msgs), but the latter fund has less than 10% of the assets of the former. Trading on correspondingly lower volume, that means iShares is more expensive to buy and sell than StreetTracks. On April 20, the StreetTracks ETF was trading at a bid/ask spread of one penny, compared with 4 cents for iShares. On a 500-share trade, the difference of $15 (3 cents multiplied by the number of shares) is more than the typical online brokerage commission.

Last year, a Barron’s article speculated gold could soar to $8,000 an ounce. Most gold bulls are predicting something less dramatic, like $1,000 to $2,500. I’m not going to risk embarrassing myself again with a guess. I do think gold is going significantly higher, and that it will remain there rather than tumble once more into the depths.

In my own portfolio I have about 1% of assets in gold, which I plan to increase to 2.5%, purchasing shares of StreetTracks no sooner than three days after this article appears, in line with MSN Money’s trading policy. Gold is out of the doghouse and back on its hard-money patrol.

At the time of publication, Tim Middleton didn’t own any securities mentioned in this article.