Gold bars 2012 2
Gold bars. Reuters

The smart money thinks the bull market in gold is far from over, with billionaire investors George Soros and John Paulson betting big on the yellow metal.

Gold prices are set for a 12th consecutive year of gains in 2012, the longest streak in at least nine decades, on growing worries about global economic growth, continued unconventional monetary policies and rising geopolitical risks that may impede gold production.

Bullion will rise every quarter in 2013 and average $1,925 an ounce in the final three months, or about 11 percent more than now, according to the median of 16 analyst estimates compiled by Bloomberg.

Gold futures for December delivery fell $8.50, or 0.5 percent, to $1,725.9 an ounce on the Comex division of the New York Mercantile Exchange on Tuesday.

George Soros, who had called gold "the ultimate bubble" last year, boosted his position in the SPDR Gold Trust (NYSEARCA: GLD), the biggest exchange-traded fund backed by the metal, by a half to 1.32 million shares in the third quarter from 884,000 shares in the second, a U.S. Securities and Exchange Commission filing showed. This was after Soros more than doubled his stake in the trust during the April-July period from the first quarter.

Last year, Soros dumped his massive stake in the gold ETF before the metal reached a record peak of $1,920.3 an ounce in September.

Another well-known manager, John Paulson, who rose to fame by betting against the subprime housing market and taking home $3.7 billion in 2007 and $5 billion in 2010, also held on to a huge gold pile at the end of September.

At the end of the third quarter, SPDR Gold Trust and AngloGold Ashanti Limited (NYSE:AU) combined made up nearly 40 percent of Paulson’s portfolio. Paulson & Co. Inc. owned 21.8 million shares in the SPDR Gold Trust, unchanged from his stake on June 30, a SEC filing showed, making him the biggest shareholder.

The 56-year-old Paulson raised his stake by 26 percent in the second quarter, and his holding of about 66 tons exceeds the official reserves of many nations.

Slowing economic growth in almost every corner of the world, the unfolding euro zone sovereign debt crisis and the looming fiscal cliff in the U.S. all have spurred speculation of more easing from the central banks.

Further monetary easing -- printing money to buy bonds -- would increase liquidity while maintaining pressure on long-term interest rates and sparking fears that inflation could rise in the longer run. All these factors support the gold price.

The Federal Reserve said on Oct. 24 it will buy $40 billion of mortgage debt a month and probably hold interest rates near zero until 2015 to boost economic growth and cut the jobless rate. Minutes of the Fed’s October policy meeting released on Nov. 14 explicitly hinted at an extension to early 2013 of its current monetary easing program known as “Operation Twist,” which expires at year’s end. The new program would come on top of the U.S. central bank's current round of "quantitative easing."

The Bank of Japan expanded an asset-purchase program on Oct. 30 for the second time in two months. While it refrained from further easing measures Tuesday, the central bank said it plans to “steadily increase” the size of its asset purchases, raising speculation that new easing measures could be unveiled in the next few months. Meanwhile, the European Central Bank has said it is ready to buy bonds of indebted nations.

The increase in money supply could be a potential catalyst for higher inflation in the future, which is positive for gold investment. Previous research by the World Gold Council shows that a 1 percent change in money supply, six months prior, in the U.S., Europe, India and Turkey tends to increase the price of gold by 0.9 percent, 0.5 percent, 0.7 percent and 0.05 percent, respectively.

Rising global geopolitical risks may also have positive implications for bullion prices.

“Rising tensions in the Middle East are gold-friendly,” writes HSBC analyst James Steel. “Furthermore, a rise in crude oil prices from Mideast tensions plays a secondary level of support for bullion, as the two commodities are historically positively correlated.”