Barrick Gold, the world's largest gold producer, has come out and effectively said that we have reached 'peak gold'. Gold production and the location of new seams of ore has fallen off in the last decade or so. Gold recently peaked at its highest ever price of $1118 per ounce just yesterday. News of a 'supply crunch' like this could cause further rises.

In the recent past China has been quietly buying gold. It holds just over 1,000 tonnes, which isn't much when compared to its vast foreign reserve holdings ($2.3 trillion).

The Reserve Bank of India has also been amassing gold, predominantly by buying half of the gold that the IMF is selling.

The costs of locating gold have soared as the miners have had to dig deeper or go further afield into less hospitable areas. With this ore grade has fallen driving up production costs. This in turn may cause mines to be shut down further enhancing the attractiveness of gold.

Central banks that were selling off their gold (the UK sold off over half its gold reserves at the end of the millennium) are now looking to start buying again.

Barrick gold ran a large hedge fund to cover a falling market, which worked well when the price of gold fell in the 1990s. But it has been like an albatross around their necks ever since. They are now winding it down, a good indicator of where they think the market may be headed.

We may now be headed for a surge in gold, especially as you don't need to physically hold the yellow metal. It can be held remotely for you with companies like Bullion Vault, or you can use Exchange Traded Funds (ETFs).

Let's hope that Gordon Brown doesn't decide that this is the right time to get back into gold after the disastrous losses made in 1999.

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