The U.S. Federal re-serve Board’s strategy of pumping money into the financial system to stave off a liquidity crisis goes by many different names — reliquification, monetary relation and reflationary rescue. But no matter what you call it, the strategy is good for gold.

“This could take gold to US$1,000 an ounce or higher,” say Wall Street analysts John Hill and Graham Wark of Citigroup Global Markets Inc. in a recent report.

The yellow metal has already gained 20% in recent months as its currency of denomination, the U.S. dollar, has declined. In mid-October, gold was trading at US$765 per ounce, its highest level since January 1980. Last year at this time, analysts were slightly hesitant to declare gold a sure-fire winner because of the effect a U.S. recession could have on commodities. But heading into 2008, predictions of rising prices are much bolder.

The Citigroup analysts, noting that gold is already running well above its 2006 average of US$605/oz., are expecting a new cycle of credit creation and competitive currency devaluations — what they call an “extended reflationary rescue” — to push gold above its historical high of US$850/oz.

There is consensus among their peers that gold is heading higher in the mid- to longer term, but with lots of volatility along the way.

Martin Murenbeeld, chief economist of Toronto-based DundeeWealth Inc. , is expecting an average price of US$823/oz. in 2008. Known for his accurate gold price predictions, Murenbeeld had called for gold to average US$679/oz. this year; thus far, the actual price has averaged US$672/oz. — within a few dollars of his expectations.

There are eight reasons why gold will continue to rise through 2008, Murenbeeld told investors at the 2007 Denver Gold Forum in late September. The top three reasons: monetary reflation, further decline in the US$ and excessive US$ reserves in Asia that will need to be shed.

The fact that gold is “cheap” is also an important factor. The metal is at a record low relative to the oil price and not far above US$578/oz., the average price in 2007 dollars since 1970.

Mix in improving fundamentals in an atmosphere of continued geopolitical risk — as supply falls and investment demand accelerates — and you have a recipe for a sustained rally, Murenbeeld says. Gold rallies tend to last at least a decade; the current rally is in its seventh year.

“I don’t think it’ll be a problem sustaining these elevated levels,” says Philip Klapwijk, executive chairman of GFMS Ltd. , at a September seminar organized by GFMS, a London-based precious metals consultancy, when gold was trading at about US$670/oz. “We may not be completely out of the woods with regard to speculator sell-offs to raise cash or reduce leverage in our new world of subprime jitters, but the norm of safe-haven buying should dominate investor activity from now on.”

In mid-October, in light of the early-autumn rally, GFMS issued another bulletin stating its September forecast of US$690/oz. for the second half of 2007 was “somewhat” conservative: “The extent of the inflows seen in the past few weeks, particularly from the speculative community, have exceeded our expectations.”

That kind of investment demand tends to snowball as more investors pile into gold, bolstered by strong endorsements from Wall Street and backed by continuing incremental increases in the price of gold.

“Investment has returned with a vengeance,” declare the Citigroup analysts, who note investment-led rallies tend to be more violent and shorter-lived than rallies on strong fabrication demand. “This was driven first by safe-haven demand during the credit crunch and now by greater awareness of gold’s critical role in reflation.”

The rally is also receiving a strong “tailwind” from seasonal demand in Asia as the Indian marriage season gets underway and the Chinese stock up on gold in preparation for their New Year in February. Normally, the Asians would be selling into a rally, the Citigroup analysts say.

Despite bullish signs, GFMS cautions that with only one main price support (investment), volatility could jump. Central bank selling, which is expected to double in the second half of 2007, could also put a damper on the rally, although GFMS believes that selling has already been factored into the gold price.

One concern that seems to have abated since last year is the impact an economic slowdown in the U.S. would have on the gold price. GFMS says continued strong growth in Asia is providing such a strong underpinning for gold that deterioration in the U.S. is much less of a factor than it used to be.

@page_break@So, what does a rising gold price mean for gold equities? Until recently, not much.

Gold equities have lagged gold over the past couple of years because some major companies — such as Denver-based Newmont Mining Corp. — are having trouble replacing their gold reserves. As well, most are grappling with increasing costs and, in the case of South African miners, safety issues. Companies whose assets are denominated in currencies other than the US$ have also been relegated to the sidelines of gold’s US$ rally.

But gold equities are finally catching up and even overtaking the underlying commodity. As of mid-October, the Citigroup composite index of gold equities is up about 28% since July 1, while gold bullion has risen at half that rate.

Citigroup has raised its target prices for all its major gold holdings, including Toronto-based Barrick Gold Corp. (to US$48 a share from US$43), Phoenix-based Freeport McMoran Copper & Gold Inc. (to US$122 from US$120) and Vancouver-based NovaGold Resources Inc. (to US$23 from US$18).

Currency variations with respect to gold are also expected to fade as inflation becomes a bigger factor.

“At some point, inflation will again become a serious fear,” says Donald Coxe, global portfolio strategist for Bank of Montreal in an October report. “At that point, gold will solidly outperform all paper currencies.”

In a rising gold price environment, using a leveraged investment strategy — such as buying the higher-cost producers, which have the most to gain from a higher gold price, and/or those with large reserve bases — makes sense in the short term, gold analysts at RBC Capital Markets Inc. say in their latest report. Using current net asset value estimates and projected 2008 cash flows as valuation parameters, RBC identifies the most highly leveraged North American stocks as Newmont Mining; Toronto-based companies Kinross Gold Corp., IAMGOLD Corp. and High River Gold Mines Ltd.; and Concord, N.H.-based Jaguar Mining Inc.

Producers with mines with long lives or with large reserve bases, such as Newmont Mining, benefit from a magnifying effect on NAV as the gold price rises, while those with higher costs, such as Jaguar and Toronto-based Centerra Gold Inc., tend to enjoy greater growth in cash flow, in percentage terms, than their lower-cost peers.

Leverage can also be reduced by strong hedge positions, such as Barrick Gold’s, and/or by significant base metal and/or silver by-products, such as those produced by Toronto-based Agnico Eagle Mines Ltd.

In the longer term, clients should focus on growth or value investing strategies, RBC analysts say. That puts Toronto-based Goldcorp Inc. and Vancouver-based Greystar Resources Ltd. among RBC’s top picks. IE