In the shorter term, it may well rise from around the present price of around $850 to over $1,000 per ounce this year.
Production of the world’s goldmines continues to decline and it would take a significant further rise in the price to reverse this trend and make it worthwhile for marginal mines to restart production because there has been a significant rise in production costs.
Consumer demand from China and India is increasing rapidly as the middle classes in those countries continue to prosper.
The fund I like best for most investors is the Merrill Lynch gold & general fund, which has around 75 per cent of its investments in gold shares, around 12 per cent in platinum, 7 per cent in silver and the balance in gold bullion, diamonds and a small amount in cash.
The geographical spread is very wide, with around 28 per cent in North America, 17 per cent each in South Africa and Australasia, 14 per cent in Europe and around 10 per cent in Latin America and the balance mainly in China and Russia.
Gold shares are far more attractive than investments in the metal itself as profits from many mines increase far more rapidly than the rise in the gold price.
Graham Birch, who runs the fund, has shown out-standing past performance. This fund has risen by over 230 per cent over five years to December 1, 2007 as well as more than doubling in value over three years.
Those who want to diversify into other commodities as well as gold should consider the JPM natural resources fund which also has an excellent record.