So let the speculation begin! Gold closed at $1,007.70 an ounce in London and is approaching its March 2008 high of $1,032.70, setting the stage for its ninth annual gain. What's behind this rise? The standard explanation is that gold rises as the dollar drops and the dollar is dropping because the world has created the conditions needed for roaring inflation.

Specifically, global governments flooded the financial markets with cash to keep them from collapsing. To be sure, U.S. marketable debt is up -- to an unprecedented $6.78 trillion -- and Goldman Sachs Group (GS) predicts that the U.S. will sell $2.9 trillion of debt in the two years ending September 2010.

Of course, gold is not the only hedge for inflation -- people buy all sorts of commodities to protect themselves against inflation. For example, crude-oil futures have risen 55 percent in 2009.

But inflation does not really exist now. It's expected to be 0.1 percent in 2009 and to rise to 0.9 percent in 2010. In fact, recent U.S. data suggest that deflation is on the march. In July, the U.S. CPI was down 2.1 percent from 2008 and second quarter 2009 unit labor costs fell 5.9 percent.

That's where the argument for gold and inflation falls apart. The U.S. economy depends on consumer spending for 70 percent of its growth. That's a grim picture as the many millions unemployed will undoubtedly be cutting back on spending since no banks will lend them money, resulting in companies forced to cut their prices to clear their excess inventory.

To maintain margins, companies will also cut their slack productive capacity. The result will be more workers thrown on the slag heap. Sure, the economy looks less bad than it was at the beginning of the year due to half-hearted efforts at economic stimulus. When those efforts trail off, however, so will the "recovery."

What an unpleasant surprise those gold bugs will face when they discover that all that inflation on which they were betting turns out to be a mirage that's wiped out by a brutal deflationary spiral.

And even if inflation does rear its ugly head, the Federal Reserve is poised to raise interest rates to contain it.

Gold $2,000? Not bloody likely.

Peter Cohan is a management consultant, Babson professor and author of eight books including, You Can't Order Change. Follow him on Twitter. He has no financial interest in the securities mentioned.