The answer
is not supply... high prices like these make it much
easier to make a profit from a mine justifying the
mining of more difficult and expensive plots... also
high demand is only part of the answer. The real
question is why is there such high demand. Most
people are currently pointing to world instability
and are looking at gold, a commodity with inherent
value, to protect them from a currency slide caused
by political instability and/or inflation. Also,
inflation itself has a direct effect, and while most
aren't attributing a substantial portion of the
price increase to a decreased buying power in money,
I personally suspect that it's a major culprit.
2nd. opinion:
The price of gold is now
rising because mining
companies do not find it
profitable to mine for gold
as the amount that come out
the mines are not as much as
they used to get.
When companies mine for
gold, they also mine other
materials, but now targeting
gold is less profitable, so
they have to target a more
profitable mineral, and
whatever gold they get is a
bonus, therefor less gold is
coming out the mine, so the
less gold available, the
higher the price goes.
3rd. opinion:
Gold is correlated with level of war, globally. It
is also correlated with productivity and national
indebtedness. It is an alternate currency. Likewise,
it is inversely related to central bank gold stocks.
High gold stocks risk sales by the central banks,
low gold stocks may trigger buying.
Gold prices have risen, imho, because the dollar,
yen and euro are overvalued, but there is no
alternate currency of sufficient strength, to invest
in.
The current American administration is borrowing
extraordinary sums. Based upon calculations by the
Treasury, before the last tax cut and the Medicare
drug benefit, on a present value basis, the United
States is insolvent in the absence of material cuts
in services and increases in taxation beyond those
scheduled.
Jagadeesh Gokhale has provided a good academic
discussion on this and seems to be leading the
academic community in measuring the problem. If you
are academically inclined, you may want to read
http://www.aei.org/doclib/20030508_gokha...