It looks as though it may be third-time-lucky for gold. Its first two attempts to stay above the $1,000/ounce barrier, in early 2008 and 2009, ended in failure. But this time the price of bullion has exceeded the four-figure mark for nearly two weeks, and shows every sign of staying there. So, what are the yellow metal’s prospects from here on?

During a presentation at Tuesday’s Terrapinn ETF and Indexing Investments Europe conference in London, Daniel Brebner, head of metals research at Deutsche Bank, said that, although the bullion price is trading at a record level in nominal dollar terms, in real (inflation-adjusted) terms the metal is some way short of a record.

In a recent article published on UK website Market Oracle, Zeal LLC calculates that gold’s 1980 peak price of $850 equates to a current price of $2,358 when adjusted for the effects of U.S. consumer price inflation. In other words, there’s some way to go before we can talk about a real price peak.

According to Daniel Brebner and Deutsche Bank, there are three key factors that influence the price of gold: inflation, inflation volatility, and the performance of the U.S. dollar.

While it’s a commonly-held view that gold does best in inflationary periods, Brebner noted that the metal’s price performs well in both deflationary and inflationary environments, doing badly only under disinflation (i.e. moderating inflation). Since deflation is, by definition, a bull market in money against the prices of most other assets, gold attracts investors as the ultimate safe currency. Under inflation, gold is a hedge against money printing. It is only in periods with falling inflation and the resulting decline in risk premium, such as the years from the early 1980s to the turn of this century, that the bullion price faces a challenging environment, Brebner argued.

Recent inflation volatility also makes for a potentially bullish environment, said Brebner. While U.S. inflation has steadily declined since the early 1980s and has now fallen into negative year-on-year territory (when measured by the consumer price index), uncertainty about the future of inflation is probably increasing. With central banks printing money and intervening to prop up the financial system, the possibility of an inflation spike in the future is a concern for many investors, Brebner argued. At the same time, the deflationists have a strong case too, he said, since broader measures of money supply are shrinking. Whichever way the inflation index ultimately goes, Brebner believes there’s a convincing argument to be made that uncertainty over future price levels – in other words, inflation volatility – is increasing. And that, he said, is bullish for gold.

Deutsche Bank’s metals team declined to give a central gold price forecast, but pointed instead to a range of future scenarios, which are, nevertheless, still skewed towards a higher bullion price. Under a scenario of moderating risk premium, low but contained inflation and a recovery from the financial crisis, the gold price in dollars could fall back to $650 per ounce, according to the bank. Under a less-benign environment, a rise in price to $2,500 could easily be on the cards, Brebner argued.

Signals from Deutsche Bank’s final bullion price factor, the performance of the U.S. dollar, are less clear, said Brebner. The bank has identified medium-term bull and bear cycles in the U.S. dollar index, typically five to nine years in duration, since the beginning of the fiat currency era in 1971. With the latest period of dollar strength apparently ending in 2002, Deutsche Bank’s model suggests a possible low for the currency in 2011. However, the bank’s analysts add that the link between these cycles and the gold price is not perfect and it’s important to recognise that the short-term dollar strength seen since the onset of the credit crisis has not hindered gold’s performance.

Meanwhile, according to Deutsche Bank research, investor demand for gold continues to provide a solid underpinning for the metal’s price. With China reputedly on course to buy some, if not all, of the International Monetary Fund’s 403 tonnes of gold currently offered for sale, the world’s major creditor countries look set to continue accumulating hard metal assets.

And, of course, demand for gold from the exchange-traded fund sector has continued its inexorable rise. Amongst the European providers of bullion tracker products, ETF Securities has just reported another new record level of gold holdings in its exchange-traded commodities (ETCs), with an increase of over a million troy ounces in the last month (to over 8 million in total), despite the recent jump of nearly $100/ounce in the metal’s price. Gold demand remains relatively insensitive to short-term price trends, it seems.

And the Swiss gold ETF providers are also witnessing record levels of assets under management. ZKB’s gold fund has increased its holdings from just over 3 million ounces at the start of the year to nearly 5 million at the latest count, while Julius Baer’s ETF has seen a meteoric rise in assets, from 285,000 to 2.1 million ounces of gold bullion during 2009.

Marketwatch.com’s Mike Hulbert provides a possible explanation for the latest period of gold price strength in a recent commentary. Hulbert’s survey of specialist newsletter writers showed that sentiment was far less bullish this time than on previous occasions when gold had neared, or temporarily breached, the $1,000/ounce level. Since Hulbert’s survey is typically used as a contrarian measure of investor mood, this suggests a positive near-term outlook for prices.

Indeed, the low level of commentator bullishness that Hulbert recently highlighted seems inconsistent with the theory that gold is in a bubble phase. According to Zeal LLC, “we have seen the moderate initial uptrend driven by currency devaluation and now we are in the investment-demand-driven stage two. Yet, clearly nowhere in this bull market has gold even come close to more than doubling in a matter of weeks. There has been no popular mania and no parabolic blow-off. We are merely somewhere in the middle of this bull.”

We will have to wait and see how these trends play out. But, for the time being, there seems to be little evidence that the boom in gold tracker products is nearing its end.