(image source: Price of Gold)
Also, what do you think about the current increases in the price of gold? I've read about some artificial limit on the value of commodities that was removed/released not too long ago, but is it at a suitable level now? Even though it's at record highs, I've read in some places that relative to currency (dollar?) prices it's still lower than much of the past.
Note: This diagram is not adjusted for inflation. It means that the real price of Gold was much higher in Jan 1980. ($700 was worth alot more in 1980 than $700 today in 2007.)
The price of Gold would have to rise to $2,250 to meet (in real terms) the record price of Gold - See inflation adjusted Gold Price
The Strength of Gold is due to Several Factors
Weakness of the Dollar.
It is a long held belief that an alternative to the dollar is to hold Gold. Therefore, as prospects for the dollar plummet, people switch to the alternative which is Gold.
Credit Markets have been shaken by the fall out from the US sub prime crisis. There is a danger of more defaults and bankruptcies. Therefore, people have gone for the security of Gold.
Growing Demand in China and India.
Economic Growth in China and India is creating an unprecedented increase in demand for Gold. The new middle classes in China and India are buying significant amounts of Gold, helping to keep the price high.
Shortage of Supply
Demand has been increasing, but, supply has not been keeping pace.
Forecast for Gold 2008
I would be quite happy to have Gold Stocks. In 2008, I feel that the dollar will continue to remain weak. Economic imbalances, such as large current account deficit, and house price falls, are still unresolved. Given the weakness of the US economy, Gold will remain very attractive. There is also no other obvious alternative to the dollar. At the moment the Euro has taken the slack, but, there is a limit to how much the Euro can appreciate.
Demand from China and India is likely to keep growing. Therefore, amidst financial uncertainty Gold has very good prospects for 2008.
Thanks for questions, William.