Gold is up today and may be breaking out of the recent range bound trading. We may be going through a deflationary period right now, but I suspect that the final result of the Fed’s balance sheet expansion will be inflation. Apparently, Middle Eastern investors agree:

Our oil-rich friends in the Middle East are scared. How do I know? Because they are buying gold like crazy!

First, we got the news that Saudi investors spent $3.47 BILLION on gold in a recent two-week period. On a ratio-to-GDP basis, that’s like investors in the U.S. spending $131 BILLION.

Why are they doing this? The only explanation I’ve heard is that the Saudis are turning to gold as a safe haven in the midst of the global financial crisis. And since the financial crisis kicked into high gear in August … something must be scaring them quite a bit more right now.

Second, Reuters reports that Iran is converting some of its foreign currency reserves to gold. Iran has $120 billion in foreign currency reserves … there’s no details on just how much was shoveled into the yellow metal.

Third, gold dealers in Dubai reported running low on gold during the recent Indian holiday, the Festival of Lights, a traditional time for Indians to buy gold. More than 50% of the population of Dubai originally comes from India. And about 20% of the world’s gold is traded in Dubai.

Here’s a chart of the gold ETF (IAU):

I’m not buying today, but I have been watching this market closely and expect to be a buyer at some point. I don’t see how what the Fed is doing cannot eventually be reflected in the price of commodities and particularly gold. I am also considering some of the gold stocks.