gold bars

The cost of gold bullion continues to rise.

Predicting which direction the cost of gold bullion will go is always risky business, because any commodity market is a complex system, in which an unexpected input anywhere along the way could result in a radical change in the spot price. This does not mean, however, that one cannot make educated guesses.

I believe that the gold bullion cost is just going to keep going up for the reasonable future… so you’d better buy it now and stay the course until the price starts to plateau, because it ain’t there yet.

Where We Are Today

The price of gold has risen about $900 in the past five years, and $300 of that rise has been since this time last year. Back in November 2005, gold was worth a not-too-shabby $500 per troy ounce. As of November 11, 2010, the cost of gold was north of $1400 per ounce.

On a strict dollar basis, that’s a record high… but it falls woefully short when you compare it to previous peaks on a dollar value basis. Take early 1980, for example, when all the precious metals peaked. Gold rose to $850 then.

So what, you say? Here’s what: 1980 dollars were a lot more valuable than the current dollar (part of the risk of getting off the gold standard, you know). Adjusting by the Consumer Price Index, that $850 peak would be equal to $2250 today. Yowzers!

Where Gold Could Soon Be

I believe it’s not unreasonable for gold to eventually break the $2000 mark. While we may never again experience the combination of circumstances that led to the 1980 peak, the truth is that despite our current financial downturn, the economic output of the United States is much high than it was in 1980.

In other words, the realities of supply and demand could easily force the price of gold higher, given its continuing rarity and usefulness in industry. On a global scale, the economic engines ramping up in gold-hungry India and China are also favorable for gold’s continued rise.

Some observers have suggested that gold could soar as high as $5000 per ounce, and wouldn’t that be heaven for us savvy investors who got in early? However, I think that would require some drastic economic or political unrest to occur, so I, personally, am moderating my expectations.

I don’t expect the cost of gold to drop anytime soon. Given its current value, in fact, I’m beginning to suspect that the London Bullion Market Association’s prediction that gold would hit $1450 by September 2011 was a bit timid. It’s not far from there now, and in daily trading the price has exceeded $1425 (briefly).

The Straight Dope

I believe that just about any precious metal bullion, gold or otherwise, is a good investment at the moment. It’s your money, of course, but I have to point out that the cost of gold isn’t likely to go down anytime soon, so you’re not doing yourself a favor if you don’t buy.

Frankly, I’m still kicking myself for not buying more gold bullion back when it was a “mere” $1100 last year. Given how high the cost of gold bullion is now, I could have gotten about 27% more for the same money than I can today… Ouch!

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