Over the past two decades or so, gold prices have increased more than five-fold from a low of around $250 per ounce in 1999 and have almost doubled since the peak of the global financial crisis in late 2008.
During the past year, the price of the yellow metal has risen 30 percent, hitting on Friday a new record $1,300.07 per ounce.
Participants at the start of a two-day precious metals conference in Berlin organised by the London Bullion Market Association (LBMA) forecast on average that the price of would be $1,406 per ounce in September 2011.
At last year’s LBMA conference in Edinburgh, participants were overly cautious, forecasting that gold would reach $1,181 per ounce by this year’s gathering.
The increase has been driven by investors worried by the crisis seeking a safe haven for their money, and by central banks in emerging economies, not least China and India, buying up hundreds of tonnes of gold as reserves.
Gold also benefits from a weakening US currency, which makes the dollar-priced metal cheaper for buyers using stronger currencies and so tends to stimulate demand and prices.
Adjusted for inflation, however, the price is still well below its all-time peak set in 1980, estimated at around $2,300 in today’s money, giving investors hope for more upward movement.
“Gold is going to continue to rise for the next one to three years because it’s bedlam on the global currency markets right now,” Josef Kaesmeier, chief economist at German bank Merck Finck, told AFP.
“The United States has an interest in the dollar staying weak, the euro is suffering because of debt problems in southern Europe and the yen is behaving in an inexplicable manner,” he said.
“The only currency that people want to buy is the yuan, but China doesn’t want that. So gold is the only thing left.”
The rise has been so strong that European central banks have recently put the brakes on their strategy of the past 20 years to offload their gold reserves in exchange for something offering a better return.
It has also drawn new players to the market.
“The attitude towards gold has changed incredibly,” said Shayne McGuire from Texas, one of the largest US pension funds, who have emerged as major buyers in recent years. “Everyone wants it in their portfolio.”
New investment tools like index funds giving buyers greater access to precious metals have also helped make gold “really accessible,” McGuire said in Berlin.
But for Merck Finck’s Kaesmeier, this is a worrying sign.
“Once pension funds start buying en masse, then I see the risk of a bubble,” he said. “I see now that gold has started to become a big issue, front page news. I don’t like that.
Graham Birch, industry veteran, agrees.
“If your taxi driver starts telling you to buy gold, you’d better sell it because this means the market has peaked.”