After a stellar 2010, gold prices could average $1,500 per ounce and $1,600 by year-end in 2011, says Thomas Winmill, president of Midas Funds.

Winmill estimates that gold will fluctuate in the $1,200-$1,800 range. “But we should hit $1,800 more often than $1,200,” he said in a phone interview Thursday.

If there are short-term geopolitical factors, like tension in the Koreas or sovereign-debt defaults, that could make the precious metal rise as an alternative to currency holdings, says the portfolio manager, whose Midas Fund (MIDSX) is up more than 40% in 2010.

In the medium term, Winmill explains, gold prices reflect the dynamics of supply and demand. As jewelry demand increases in emerging markets like China and India, for example, the price should move up accordingly. There is also demand from central bank purchases and the scrap industry.

“This is why I’m largely bullish,” he explained. “The central banks have become net buyers in the past five years.”

Long-Term Dynamics

“There should be a slow steady appreciation of gold in the long term,” Winmill said. This is due to U.S fiscal and monetary policies that are lowering the value of the dollar and increasing investors’ appetite for the precious metal.

“The government is increasing the deficit, not raising taxes and fighting inflation,” he added. As the U.S. dollar’s value declines, more manufacturing is pushed back into the country, and “we essentially import inflation.”

“When the U.S. dollar is worth less, there’s a need to buy more gold,” Winmill shared.

And as for when this cycle may reverse itself, “You tell me when U.S. fiscal and monetary will change,” the portfolio manager concluded, “then I’ll say gold prices will go down.”

This dynamic and gold’s performance over the past five years, he points out, make it worthwhile as part of a wealth-preservation strategy.