UNITED STATES - Gold has been an extraordinary investment since it bottomed around US$250 an ounce in the autumn of 2001. Since then, it has risen 662 per cent to around US$1,880, fallen back to around US$1,525 and is currently US$1,700.
As opposed to the bearish views around 9/11, the vast majority of advisers now maintain that investors should have a 5-10 per cent holding in gold. With the exception of Goldman Sachs - which recommended profit-taking recently - predictions for next year range from US$1,750 to US$2,100 an ounce with the consensus at US$1,850. In today's money, the 1980 peak of US$850 would be around US$2,300, so bullish advisers say the metal is at fair value.
The most popular bullish argument is that the US, Europe and now Japan are intent on quantitative easing - that is, boosting money supply. With interest rates close to zero and government bond yields pitiful, US Federal Reserve Board chairman Ben Bernanke has effectively launched a currency war.
"By printing all this money, Bernanke is debasing the dollar, as the rest of the world is not printing money as fast as the US," says John R Taylor, chief investment officer at FX Concepts, a large foreign exchange fund. "As a result, in the long run, foreign currencies will go up in value, and commodities like gold and oil will rise in dollar terms."
With these bullish factors in play, gold holders are wondering why the price isn't taking off.
A simple reason is that global investors already own a massive quantity of gold via bullion in vaults and exchange-traded products (ETPs) such as GLD. According to the World Gold Council (a research and promotion organisation that promotes the interests of goldmines), investment in gold has been accelerating at a fast pace.