Once the gold price breaks $1,000 an ounce, who's going to step in and keep buying? Gold prices, along with silver, are making new ground every day consolidating seemingly in preparation for an attack on $1,000 per ounce.
But thereafter, who will buy gold and pay over $1,000? It seems a daunting price for any new investor or even one with a sizeable holding already.
Why is $1,000 per ounce such a barrier? The move to four figures implies gold is moving into a new league and can't hold that level.
If one looks at the gold price in Euros, however, the picture changes. In those now distant days when the European single currency was worth $1.25 -- rather than more than $1.50 today -- the Euro price of gold battled heavily to get past 530 per ounce.
Now it sits at 640, however. So it seems that a 20% rise is not as outrageous as we thought.
Look at gold in the Australian Dollar or the Japanese Yen, and there hasn't been anywhere near such a rise as we have seen in the US Dollar price of gold -- and also in the gold price in British Pounds Sterling, too.
The big problem, particularly in the United States, is the thought that the dollar is not rock solid. The US price of gold involves cultural as well as value measurement problems, both of which have to be considered too.
In other words: Is this really about the dollar -- and hence the global monetary system -- or simply about gold in isolation?
Look at gold relative to the oil price and its performance pales to a more reasonable move. That's why OPEC is talking about setting the price of oil in Euros. If we look at the oil price in the European currency, then its performance looks considerably more reasonable too.
If oil were priced in the Euro then its rise of the last five years would not focus attention on the producers so much as on the dollar's own managers -- the US authorities, including the Fed and Treasury. The public outcry would be against these miscreants, not the oil producers.
With attention pointed this way, perhaps then the Fed and Treasury would actually do something about the Dollar's international value. Something has to be done and soon, or confidence will not only be lost outside the US, but inside it as well. Inflation, after all, simply describes a dropping currency value all too clearly.
But this move to shore up the dollar may well come only after Capital (and perhaps Exchange) Controls have been imposed.
To overcome the $1,000 barrier in gold, in other words, look at gold through the Euro or Yen or Aussie Dollar. Your perspective will change.
$1000 gold as a thermometer
Why did gold go up to $990 in the first place? Was it simply demand versus supply, isolated from external factors? No, not at all!
Gold has risen as other investments have lost their glitter. The sapping of confidence, away from the dollar and Wall Street, away from the subsidence of consumer confidence... the threat of 'contagion' caused by the sub-prime crisis, which metamorphosised into the 'credit crunch' where bankers became scared to lend to bankers right across the world... will really be seen now that the reporting season is upon us.
When these and the other ancillary factors are synthesised, we have a structural crisis -- and a structural crisis which the major Western central banks are finding it very difficult to fight, let alone conquer.
People choosing to buy gold today are merely looking for an investment that will not suffer when the alarm bells next ring. They are looking for something that will go the other way in terms of purchasing power -- and go up!
Gold is doing that very well indeed. It has acted remarkably as a "thermometer", rising as the investment temperature rises across the globe. When we read of the ripple caused by these crises in the system, each day carrying another consequence of the drama in the media, realistic investors put a little more into gold.
And with major institutions now moving into commodities, an enormous tide of money is considering gold. As something that cannot be printed -- and which is nobody's obligation -- just a small amount of gold investment would propel the price up beyond the market's imagination.
Don't just look at the last 20 years of the history of gold; look at why it went up in the 1970s. It was for the same reasons, only this time the power to hold it down has declined alongside the will to do so.
$1000 Gold: What else can match gold's security?
When you sell an investment you actually buy something else immediately, even if it is just the cash. When you sell gold, then as a rule -- and not least in the United States -- you buy the dollar. When an oil producer sells oil, he buys the dollar. The nifty of foot will quickly go elsewhere, but that now means selling the dollar to buy something else.
One is trapped with an investment alternative that is just not doing the same job. Even if gold did not rise anymore, but held current levels, it would prevent the pernicious decline of either the dollar or the alternative investments -- such as equities or bonds -- which one may choose.
You can hold gold simply to preserve your wealth. The question is: Will gold fall back at this point?
Most certainly yes; there will be pullbacks, then rises as with any consolidation. The trend, however, remains up, so its wealth preserving qualities look like they will persist.
A look at India paints the picture very well. Indian citizens love gold for several reasons: financial security, religious reasons, avoidance of official prying eyes and the corruption that attends this.
They are long-term buyers of gold and this characteristic will not change. As more disposable money comes into their hands, they buy what they can. But with gold prices now above Rs 13,000 per 10 grams, few Indians have the appetite to buy gold right now.
This loss of appetite will continue until gold has established its place around $1,000. The price at which Indian consumers will buy will continue to rise until they are convinced it will hold around $1,000. Should it fall, it will be seen as a buying opportunity at the levels it's turned at, and Indians will be in there too.
But the bulk of Indian retail buyers need to be convinced that these prices will hold before they re-enter the market. You can be sure they will be back, as they have been all the way up from $275 to current levels. We believe the same will soon be true in the developed West as well.
$1000 Gold: Reasons for gold to go higher
Take a look at the fundamentals that have driven gold higher, up 50% vs. the dollar in the last six months alone. Have they changed? Have they been exhausted? Not at all!
Has the dollar's fall terminated?
Has the oil price stopped rising?
Has the credit crunch been resolved?
Has the world's money system been repaired and solidified?
Has wealth stopped moving from West to East? Has confidence in the US housing market and the global economy been restored?
Is it impossible for any of these matters to worsen?
Is the investment climate globally looking solid and worth more investment?
Will the potential tsunami of capital stay in one place only?
If the answer to these questions remains negative, then gold has good reason to rise further, far above $1,000 per ounce.
Julian Phillips -- one half of the highly respected team at GoldForecaster.com -- began his career in the financial markets back in 1970, when he left the British Army after serving as an Officer in the Light Infantry in Malaya, Mauritius, and Belfast.
