One factor that Andrew Leonard didn't include in his useful summary piece is that there is actually a shortage of gold reserves looming. During the hiatus in the gold price when it langushed in the $250 to $300 range in the late nineties and early noughties, all gold exploration ground to a halt, but the gold miners and producers didn't slow down. Consequently, very few new gold orebodies were discovered or brought into production. At that time many governments sold off gold reserves that had previously backed their currencies, thus flooding the market. That glut has now passed. With reserves dwindling, new discoveries and production far on the horizon and demand from burgeoning markets in India and China rising the price can only go up.

I see the gold market in terms of the game we played as kids, Rock, Scissors, Paper. Rock is the gold, Paper is the currency, and Scissors is the Federal Reserve. Paper wraps Rock. Gold prices collapse, because of the numerous ETF's, there is something like 70 times move paper written against gold, than there is physical gold. Much of that gold will be nationalized, and held away from the markets. Regardless of what happens to gold, the economy goes into deflationary shock, and the banks find they are short of liquidity. Electronically held assets are reduced, or cash in printed, and hyperinflation sets in. Scissors cuts Paper. At that point faith in the currency disappears, and gold becomes the standard, once more. Rock breaks Scissors.

Don't forget that Russia is using its new found oil wealth to stockpile Gold and foriegn currency. Since Russia is a Gold exporter, the simple fact that a lot more Gold is staying in Russia hasn't hurt the prices any.

http://snipurl.com/ouf3

Moscow times article

Gold is only at a 25-year high in constant dollars. Once inflation is factored in, it is clear that gold is worth far less than it was 25 years ago. How many barrels of oil, or (to use the Economist's favorite example) Big Macs will an ounce of gold buy? Far less than it used to.

Those who believe the hype and invest in gold almost invariably lose.

A few months ago, flipping through the radio channels, I found a Christian talk station with a "Smart Money" segment dominated by gold.

The program mixed general investment principles ("balanced portfolios should include precious metals"), general gold marketplace discussion, and religion (lots of hits on variations of the word "steward").

The host of the program must have some interest in brokering gold or something because every night when I drive home at the same time, the Christian station is hawking gold.

Jason

We are in the midst of a massive increase in money being pumped into the system by the Fed in order to stave off a dollar collapse brought on by Bush's deficit spending, moves by large dollar holders such as China, Japan and Saudi Arabia to shift a portion of their forex holdings out of the dollar, and the threat that oil pricing will gradually shift from dollars to Euros. The Fed recently announced that they would stop disclosing M3, presumably in order to conceal this enormous increase in liquidity. This is why the economy is apparently going well and we're having a stock market rally. This state of affairs will go on until the 2008 election unless we have an Argentina-style meltdown first. Bush is trying to emulate Clinton by creating his own economic and stock market boom prior to the election, but this one is based on deficit spending and reckless monetary policy rather than on productivity gains or real prosperity. After 2008, there will be hell to pay.

Gold is not at a 25 year high in real terms. And it makes no sense to think a dollar from 1980 is worth the same as a dollar today.

So, gold is at a 12 year high in real terms. Which is not half as big a deal.

Anyone, I'd call gold for $1000/ounce by year end.

Just a minor point about a mistake that's irritating to see repeatedly: currency names are spelled in lowercase ("dollar", "yen", etc.). Thus, it's not the "Euro", it's the "euro".