Athletes who win gold in the 2012 Olympics have an incentive to skip the lap of honour and run straight to the bank. Gold’s price has moved back above $900 an ounce this year, from less than $300 ten years ago. The once forgotten metal is back in demand – from savers and investors worried about inflation, and a growing number of industrial users who target its material properties as much as its symbolic asset value. Because mining activity was run down during the long price slump, the upturn in demand has quickly run up against a limited supply.

In China, India and the Middle East, as Max Flint discovered on his trip to Dubai for The Money Programme, gold’s attraction as a safe store of wealth has never really gone away. Given the scare stories circulating about the state of some banks, particularly in China, it’s unsurprising that many households still prefer to keep their savings in a jewellery box than a bank vault. Some analysts lucratively anticipated the emerging world’s gilt-edged appetite a decade ago. Gold bars [image © copyright Photos.com] Copyrighted image Credit: Photos.com Gold bars

Elsewhere in the world, gold’s decorative role now competes with some fast-growing industrial uses – as a component in electronic circuits, catalyst for speciality chemical production and air filtration, corrosion protector, and upmarket dental substitute. Industry absorbs little more than 300 tonnes from an annual world consumption of over 4,000 tonnes, but it means those stocking up at the souks and bazaars have some powerful corporate buyers to haggle against.

Even after the rise in 2008, gold price was less than half its last (1980) peak price in real terms in that year. The run-up hasn’t been as smooth as that for oil, or even platinum, and there are plenty of reasons why it might be short-lived. There’s a large global stock – held by central banks, individuals who hoarded it before the long price slump, and speculators who bought during the recent recovery – which will be offloaded whenever the price goes too high. Many of those industrial users can turn to substitute metals when gold gets too expensive.

And if Federal Reserve chairman Ben Bernanke is right, the dollar zone (including China) is already through the worst of its inflation fears and bank scares, so less in need of gold as a precautionary investment. In calmer times ten years ago, gold’s future looked decidedly bleak.

"if they’re left holding too much when the price goes down again, at least they can wear it to the next party"

No-one knows how big the available stocks are, and those looking to sell have an interest in concealing how much they hold. Prices could suffer if too many analysts raise their estimates of the ‘free’ supply. As big gold trades are still confined to a small number of exchanges and traders, there are also suspicions that these can manage price movements, to smaller players’ disadvantage.

But just as the fight for Olympic glory is driven by motives beyond money, it’s more than financial calculation that makes investors go for gold. Otherwise, we’d see more of them buying the shares of gold mining companies – whose risks are spread wider, because the same seams often yield other metals – or of precious-metal investment funds, not sinking their funds directly into shiny bars.

After the great stock market crash of 1929, one chastened speculator observed that he’d have been better off buying $1000 worth of beer than $1000 worth of shares in the company that brewed it. The remaining stock would have been worth more – and given something to drown the downside sorrows in. There may be a similar motivation behind the old bulls’ return to new bullion. If they’re left holding too much when the price goes down again, at least they can wear it to the next party – and shake hands with their banker without having to count the rings.

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