Fat Prophet senior resource analyst Gavin Wendt is tipping a price of $550 an ounce by the middle of next year and said there were a number of reasons behind the buoyant gold price.
"We are seeing production starting to decline from the three major sources of gold production being Australia, South Africa, and North America," Wendt said. He estimated global production in 2005 would be around 300 tonnes, falling from 2004's total output of 346 tonnes.
"If you went back around 10 years ago production was up around 1000 tonnes." The World Gold Council said demand for gold has been growing for almost two years with the Middle East, China, and India underpinning the demand.
Demand traditionally increases in the fourth quarter of the year when the Indian jewelry season kicks off. And as with most metals, China accounts for some demand, with the growing middle class keen to showcase their new found wealth, according to Daiwa Securities analyst Mark Pervan.
"In India we are seeing very strong economic growth very similar to China at the moment," he said. "Indians love showing off their wealth through gold and jewelry." Also driving demand is a move by a number of central banks, notably Russia and South Africa, to acquire more gold.
While a booming gold price will fatten the coffers of gold miners, it is also an opportunity for investors. Pervan and other analysts believe smart investors will be putting their money into gold stocks. Newcrest Mining, Lihir Gold, Newmont Mining, and Indophil Resources top the list of the most likely to generate a return on investment.