One thing I can't work out about the run up to $1100 or so for Gold is that it is supported (supposedly) by countries diversifying out of USD.
If I was a country with, say, $50 billion or so to spend on commodities to reduce my USD weighting, I can either buy -
1. Gold - can be used to make jewellery or gold bars to put under your bed
2. Energy - can be used to power the nation, wars are fought over it, drives economic growth (running factories, making plastics etc), is forecast to run out at some time in the future
I can't for the life of me work out why you would poor sovereign wealth into gold?? At the very least you would stockpile copper or nickel which has value to the economy I would have thought
Maybe I am oversimplifying - keen to hear if there is something I have missed. The only argument I have heard is that it is an inflation hedge (wouldnt oil be the same?) or that the amount of gold/new mines each year is declining.