Gold Bugs Flying High

The gold bugs are having a summer picnic and everybody's invited.

Surging oil prices and a drooping dollar have pushed gold prices up 5% over the past month to more than $440 an ounce. The big move has precious metals investors atwitter with expectations that the shiny metal finally may be revving up for a big run past $500.

Of course, gold devotees have seen a number of false starts since last fall, marked by a series of so-called lower highs. But with oil now growing comfortable in the low-$60 per barrel range, it's getting harder and harder not to see inflation -- a gold bug's best friend -- in the economy, even if it is not showing up in the economic data.

TheStreet.com checked in with Shanquan Li, portfolio manager for the $350 million (OPGSX Quote)Oppenheimer Gold & Special Minerals fund, to get his read on whether this summer's gold rally can last.

It has been a golden summer for gold investors. Which way is gold headed from here?

A continued rally in gold prices depends on two things: the dollar and oil. If the dollar continues to weaken, as it has been doing lately, and oil prices keep heading higher, as they have been doing, then the implication is that inflation is on the way. That's why gold has been popular lately. It's a great two-way hedge against the dollar and against inflation.

Is gold directly linked to oil?

In the last year, oil and gold have been highly correlated. But the longer history, let's say 10 years, it's quite different. Sometimes it has been correlated and sometimes not. That's because it's a different supply/demand story.

You mentioned buying gold as a hedge against inflation, but the official economic data keep showing that there is no serious inflation problem. What gives?

This point has been very controversial. First of all, inflation is often delayed. Very often people don't realize inflation has arrived until they see it in the data. And by then it is too late.