U.S. Federal Reserve Chairman Alan Greenspan’s clout extends not just to U.S. equities. He also appears to hold the price of gold in the palm of his hand.

If Greenspan can deftly rein in the runaway U.S. economy, slowing it enough to quell inflation but not too much that it sends stocks plunging, a major rally in gold prices seems unlikely this year.

In past times of political or economic uncertainty, gold almost always drew a significant amount of speculative funds, which naturally drove prices higher. However, since the fall of the Berlin Wall in 1989 and the end of the Cold War, gold seems to have lost its appeal as a speculative investment in times of trouble.

But we probably don’t have to worry about gold going down the same path as silver.

There are a number of factors we can point to that are working to hold the bottom under the gold market.

First, even if gold were to become a commodity traded much like silver, we believe its downside would be relatively limited. Even the most efficient mines in North America have an average production cost of about $250 per ounce; if the price of gold slipped significantly below this level, mines would be operating in the red.

Second, we could note that although the International Monetary Fund and many European central banks are selling off some of their gold stocks, not all central bank officials are of the same opinion regarding the value of gold.

Last fall, Hans Tietmeyer, ex-president of the German central bank, said gold has great value as an emergency provision, and because people generally feel assured seeing it as part of a central bank’s reserve assets, the psychological element of gold reserves should not be underestimated.

And finally, it should be remembered that gold has always been important to people in India and Asia, and that demand for gold can be expected to continue to grow.

Thus while we might be able to say the upside potential for gold is relatively limited, the downside seems limited as well.

So while gold seems unlikely to shine too brightly again unless we see an end to the “new economy” and an era of inflation-free growth, it seems equally unlikely that its glitter will fade completely.