Why gold is going to four figures

It's Economics 101. Increasing demand and decreasing supply are what have been driving gold in the latest phase of its bull market, and they'll continue to push its price higher in the foreseeable future.

On the demand side, the World Gold Council's latest Gold Demand Trends report shows that investment demand for gold doubled in the third quarter as compared with the same period last year. Mineweb reports:

The driving force in the growth in demand in the third quarter was investor interest, largely on a safe haven basis, in the face of the growing concerns over the problems in the sub prime markets and their potential ramifications on the financial sector.

Those problems aren't likely to go away any time soon, which should keep safe-haven demand strong.

On the supply side, London's Daily Telegraph quotes Gregory Wilkins, chief executive officer of Barrick Gold, the world's largest gold miner, as saying:

There's not much gold out there. Global mine supply is going to decrease at a much faster rate than people generally believe. Many of the new mines that people are anticipating will never come into production. . . . It's hard to say where the price of gold is going because we're in uncharted waters. I would say it could easily move to $900, $1,000, or beyond. It could happen very quickly.

Wilkins was speaking at an invitation-only gold-mining conference in London last week. Just before the conference began, its organizer, RBC Capital Markets, predicted in its latest gold outlook that the price of gold will reach US$900 early next year. In the interim, RBC's analysts expect a brief correction, partly due to seasonal factors, that will take gold down to the $725-$750 range.

And if $900 to $1,000 is too conservative for you, Redburn Partners, in a 104-page report entitled Gold War, projects a long-term target of $1,500, with a possible spike to $5,000.