Gold Bug!

The price of Gold has dropped once again after touching all time highs of above $900 an ounce only last week. I am quite confident that Gold should go up again and test the $1000 an ounce levels.
As an avid goldbug, I believe that Gold is the only commodity that can provide stability in the times of economic uncertainity. The reasons for this are many. Firstly in an economy, money should be printed only based on productivity delivered. However, such a fine distinction is difficult to make when countries run into deficit. This is what leads to dilution of value of the currency (inflation). In order to combat dilution of value, the common remedy is to increase the interest rate to reduce money supply. When this is done, the rate of depreciation of the currency increases unless the money taken out of circulation generates productivity equal to the interest rate or more.
Having said that, I think that since Gold has a finite supply, it would not be possible to just create more gold to bridge the deficit. Thus Gold can maintain its value. Secondly due to environmental concerns as well as depleting resources, Gold production is not meeting demands. This means that going forward, as the demand for Gold increases, the supply would not be adequate and therefore, the value of Gold will increase.
On the other hand, whatever Gold production takes place now, has a higher cost of production due to increased fuel costs and environmental compliance costs. This in itself will ensure that the price of Gold continues to increase.
If the Gold standard was used to define value of currency, it would be more robust. In other words, the total value of currency issues should be equal to the Gold held in reserve to back it. In the absence of this arrangement, it is very difficult to determine the intrinsic value of a currency except the fact that it is backed by a soverign promise to deliver value.
Over the last 5 years, the tendency of Gold price to rise has been tempered by steady flow of Gold auctions from the Central Banks of Europe. It was only last year that the Kuwaiti central bank bought Gold to diversify its reserves. If you think about it, China, Japan and India have a large foreign exchange reserve predominantly drawn in US Dollars. With the constant drop in the Value of the USD, these countries would like to diversify their reserves to preserve the value. The alternatives are the British Pound, Euro and Gold. The British Pound by itself would find it difficult to act as a reserve while the Euro is a political union with diverse economic scenarios in member states. Thus we find that some countries are moving into Gold while others are creating soverign wealth funds to buy assets at bargain prices.
The biggest boost for Gold will come when China decides to add Gold to its resources. There are unconfirmed reports that this has already commenced. The Gold futures market that just started up in China is another interesting indicator of the interest generated by Gold.
Another aspect to bear in mind is that as long as petrol prices are quoted in USD, the brunt of the economic problems will be borne by the Euro, CAD and British Pound while the USD continues to sink.