The technology bubble of the 1990s (measured by the Nasdaq), the oil bubble of the late 1990s/early 2000s (measured by oil futures prices), and the housing bubble (measured by the S&P 500 Homebuilding Index) took 10 years and posted gains of about 1,000% before they burst and quickly surrendered most of those gains.

Gold's rally is now just entering its tenth year, historically the best year for gains. If gold tracks the classic bubble pattern -- and it has so far -- instead of plunge, it would double in value this year. It is worth noting that gold's March 1980 peak at $850 is about $2,400 in today's dollars when adjusted for U.S. inflation -- well above the current price and near where gold would be headed if it tracked this classic pattern, though past performance is no guarantee of future results.

However, we do not believe gold -- or commodities in general -- is in a bubble and most likely will not continue to track the classic pattern. But we do see potential for further modest gains for precious metals and other commodities in 2011, to be accompanied by volatility.

The qualitative factors that are combining to allow gold's shine to endure include the following:

1. The declining dollar and outlook for rising U.S. inflation: The actions by the Fed to stimulate the economy have led to weakness in the dollar. As the dollar goes down, the price of gold in dollars goes up. While gold surged to an all-time high in dollar terms over the summer and fall of 2010, gold has been flat over the same period in euros and in yen. In Australian dollars, the peak in gold was back in February of 2009 and is down about 10% since then. So part of our perception of the big surge in gold over the past year is in large part because we are measuring it in weakening U.S. dollars.

2. Strong emerging market demand: In China and India gold is both a savings vehicle and a luxury for an emerging middle class. India and China lead the world in terms of gold demand growth.

3. Central banks from sellers to buyers: The world's largest central banks have been selling their gold reserves for decades after moving away from linking their currencies to gold. Most recently, Mexico, Russia and Thailand added to their gold reserves in February and March 2011. Given the current economic environment, we believe central banks may continue to add to their gold reserve base as further currency debasement and long-term inflation concerns persist. As the reserve currency status of the dollar comes into question, emerging economies are increasing their exposure to gold. With China and India holding relatively low levels of gold, a modest increase in their holdings as a percent of foreign reserves -- as they diversify away from holdings of U.S. Treasuries -- could easily account for 100% of current annual production.

4. Not just a defensive asset: Normally a beneficiary of a pullback in riskier investments, investors have often embraced gold as a perceived insurance policy against a return to recession. However, rather than act purely as a defensive investment, gold rose last year along side stocks and bonds.

5. Supply has been constrained: The supply-demand equation continues to provide a favorable tailwind for gold prices. After averaging growth of 4% annually since 1980, world production growth of gold has slowed considerably since 2001, averaging -1% annually over the past 10 years. To meet the gradual rise in demand, a steady increase in scrap supply has been needed. But scrap is falling short. It is getting more expensive to mine gold as the most accessible areas have been mined out and new mines are in increasingly remote or hard-to-mine locations. To meet the demand the major producers are pursuing digs formerly thought to not be economically viable at costs over $1,000 per ounce.

Finally, with gold supported by multiple fundamental forces, one of our pre-conditions for a bubble is the asset has to be "over-owned." All the gold produced around the world over the past 110 years (which accounts for more than 80% of all gold ever mined) at today's prices is equivalent to only about 3.9% of the combined total value of stocks, bonds and cash around the world. While up from the 1.3% in 2000 when gold prices were depressed, it is similar to the 3.5% in 1990 and well below the whopping 12.1% in 1980 when gold traded near its last peak. While gold's popularity is returning, it does not seem "over-owned