Gold prices could hit 20-year highs of close to $500 a troy ounce this year as its image as a safe investment haven returns, a report has said.
Strong demand for gold in India has bolstered prices
Out of favour for many years, investors flocked back to gold last year pushing prices to a 16-year high.
Concerns about the state of the US economy, allied to soaring oil prices and the threat of terrorism, are set to reinforce this trend in 2005.
Industry experts GFMS said a price of $500 "no longer looks fanciful".
The precious metals consultancy said prices were on an upward curve as a result of strong demand, tight supply and renewed investor interest in the commodity.
"Prices could easily establish fresh highs (in 2005), perhaps even begin to approach the $500 mark," GFMS said in its authoritative annual Gold Survey, published on Thursday.
Gold evangelists have been cheering recently with dollar denominated prices enjoying double digit growth in each of the past three years.
In November, the price rose to $454.20 a troy ounce, its highest level since 1988.
This recent gold rush is in stark contrast to the metal's dull performance for much of the past 20 years.
Out of favour during the heady stock market rises of the 1990's, the price of gold hit a 25-year low of $255 in 2001.
It has since made a steady comeback as the dollar has weakened and fears about the long term health of the US economy - fuelled by its spiralling trade and fiscal deficits - have grown.
GFMS says that, in real terms, the average price of gold last year was still $70 lower than similar prices over the past 20 years.
"Looking at the price in historical real terms shows that gold today is still cheap," says chairman Philip Klapwijk.
"Our views remains that there will be a bias towards growth in investment demand for gold."
Despite its largely upbeat assessment, GFMS said that a strong rally in the value of the US dollar could send prices back below $400 a troy ounce once again.
It also noted that the sharp rise in dollar denominated prices had not been matched by those in other currencies, with some non-dollar prices actually having fallen in 2004.
Many leading US economists and fund managers are predicting a 'flight to gold' over the next few years as the economy struggles to contain growing inflationary pressures.
"There will be a point where the trust which most people have in paper money drops away," says Ian Watson, chairman of mining firm Galahad Gold, which listed on the Alternative Investment Market in March.
"That is when gold will make its significant move."
Key structural factors may also underpin gold's price growth.
Production fell to its lowest level since 1996 last year, as Indonesia, Australia and the US suffered temporary restrictions in supply.
Although output is set to increase this year, new capacity is relatively scarce, underpinning prices.
The bear market of the 1990s made it difficult for companies to fund exploration and it became largely uneconomic to open new mines.
At the same time, global demand for gold is strong, particularly for use in jewellery and electronics.
In the Middle East, demand for gold rose 7.5% last year while demand for jewellery grew 12% and 16% in China and India respectively.
"As China continues to create wealth, more of that money will go into gold," says Mr Watson.
Despite its recent climb, gold has still been outshone by many of its less illustrious peers.
Silver and platinum prices rose more than 20% last year.