Analysts raised their 2011 forecasts more than for any other precious metal the past two months, predicting a 10th annual advance, data compiled by Bloomberg show. The most widely held option on gold futures traded in New York is for $1,500 an ounce by December, or 18 percent more than the record $1,266.50 reached June 21. Holdings through bullion-backed exchange-traded products are already at more than 2,075 metric tons, within 0.1 percent of the all-time high.

One of the biggest buyers has been Soros Fund Management LLC, which oversees about $25 billion. George Soros, who made $1 billion breaking the Bank of England’s defense of the pound in 1992, described gold as “the ultimate asset bubble” at the World Economic Forum’s January meeting in Davos, Switzerland. Buying at the start of a bubble is “rational,” he said.

Soros Fund Management sold 341,250 shares of the SPDR Gold Trust, the largest ETP backed by bullion, in the second quarter, according to an Aug. 16 Securities and Exchange Commission filing. That still left a holding of 5.24 million shares, equal to almost 16 tons. Soros declined to comment on the change, through a spokesman.

Pat Heller, who owns Liberty Coin Service in Lansing, Mich., deals with around 1,000 customers every week. Many are individuals looking to protect wealth in an uncertain economy, he said, while others are dealers like him.

With spot market prices for gold at nearly $1,200 an ounce, Heller estimates that he’ll be filling out between 10,000 and 20,000 tax forms per year after the new law takes effect.

This change goes well beyond gold dealers to every small and micro business person in the country.

The news that a mystery bank has just pawned the family jewels gave traders a jolt – nervous about the sudden transfer of almost 20pc of the world’s annual gold production and the possibility of a sell-off.

In a tiny footnote in its annual report, the bank disclosed its unusually large holding of gold, compared with nothing the year before. The disclosure was a large factor in the correction of the gold price this week, which fell below $1,200 for the first time in more than a month.

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1907 $10 GOLD LIBERTY EAGLE PCGS MS 62 LAST YEAR ISSUE US $999.99 Auction Ends: Thursday Sep-09-2010 7:57:46 PDT   | Watch this Item

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Gold delivery for June was up $4.30 to $1,185 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Monday has traded as high as $1,185.90 and as low as $1,177.10. The U.S. dollar index rising 0.41% to $82.20 while the euro was falling 0.52% against the dollar. The gold spot price was rising over $6, according to Kitco’s gold index.

gold flake by the bag lot Bullion wear scrap melt xXX US $0.99 (0 Bid) Auction Ends: Thursday Sep-09-2010 7:50:52 PDT   | Watch this Item

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Aaron Regent, president of the Canadian gold giant, said that global output has been falling by roughly 1m ounces a year since the start of the decade. Total mine supply has dropped by 10pc as ore quality erodes, implying that the roaring bull market of the last eight years may have further to run.

“There is a strong case to be made that we are already at ‘peak gold’,” he told The Daily Telegraph at the RBC’s annual gold conference in London.

“Production peaked around 2000 and it has been in decline ever since, and we forecast that decline to continue. It is increasingly difficult to find ore,” he said.

The supply crunch has helped push gold to an all-time high, reaching $1,118 an ounce at one stage yesterday. The key driver over recent days has been the move by India’s central bank to soak up half of the gold being sold by the International Monetary Fund. It is the latest sign that the rising powers of Asia and the commodity bloc are growing wary of Western paper money and debt.

China has quietly doubled holdings to 1,054 tonnes and is thought to be adding gradually on price dips, creating a market floor. Gold remains a tiny fraction of its $2.3 trillion in foreign reserves.

Gold touched $1,119.10 an ounce, an all-time high, as the U.S. Dollar Index, a six-currency gauge of the greenback’s performance, fell as much as 0.3 percent to a 15-month low before erasing the loss. India’s central bank bought bullion last month to diversify its assets. Before today, gold jumped 6 percent this month while the currency index lost 1.8 percent.

“The interest that central banks have shown for gold has really lit a fire under the market,” said Matt Zeman, a metals trader at LaSalle Futures Group Inc. in Chicago. “People are questioning the value of not only the U.S. currency but all paper currencies. Investors are more comfortable holding gold.”

Full Story at Bloomberg

The recent surge in the price takes the precious metal above the $1,032.80 it hit in March last year.

The dollar has been hit by reports that the Gulf nations are thinking of ditching the US currency as the world denomination for oil.

Arab states are said to be in talks with Russia, China, Japan and France to replace the dollar with a basket of currencies. Gulf officials have denied it.

The precious metal has been one of this decade’s best performing assets, rising on average by 15% per year.

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Successful investing is about the diversification and management of risk. In layman’s terms this means not having all your eggs in one basket. We know from history that markets can and do crash and if you are not diversified your entire nest egg can be wiped out.

Investing in physical gold

Physical gold should form a part of every properly diversified portfolio. It is a universal finite currency, held by every central bank of note in the world . In the same way that the family home should not be regarded as an investment, gold is not an investment per se, rather a form of ‘saving for a rainy day’ or of financial insurance. It is to be taken possession of or stored with a secure third party and should not be traded. One does not trade an insurance policy and thus as a form of financial insurance, physical gold should not be traded.

Gold bullion is the ultimate safe haven asset and a great way, if not the best way, of ensuring wealth preservation and for passing wealth from one generation to the next. Once the solid base or core holding of gold bullion is achieved in a portfolio then other investments in gold such as mining stocks and mutual funds and other more speculative gold investments can be considered.

Modern bullion coins and bars

Gold, silver, and platinum are all available in the form of bullion coins, minted in the US, in Canada, South Africa, Austria, Australia, China and other countries. Most bullion coins are minted in 1/10oz, 1/4oz, 1/2oz & 1oz form (and some can be bought in 2oz, 10oz & 1 kilo). However, one ounce gold bullion coins such as Krugerrands are by far the most popular for both small investors and high net worth individuals who like the divisibility afforded by them.

Semi-Numismatic and Numismatic Gold Coins

Numismatic or older and rare coins are bought not solely for their precious metal content but also for their rarity and their historical, aesthetic appeal. They are leveraged to the gold price which means that the price of these coins will generally surpass and increase faster than the gold price in a bull market (due to their historical and aesthetic value and to their rarity) and will decrease by more when gold is in a bear market.

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American Eagles use the durable 22 karat standard established for gold circulating coinage over 350 years ago. They contain their stated amount of pure gold, plus small amounts of alloy. This creates harder coins that resist scratching and marring, which can diminish resale value.

Minted to exacting standards, the obverse (front) design is inspired by what’s often considered one of America’s most beautiful coins: Augustus Saint-Gaudens’ celebrated $20 gold piece, minted from 1907-1933. The reverse features a nest of American Eagles, symbolizing family tradition and unity.

What truly sets American Eagles apart is that they are the only bullion coins whose weight, content and purity are guaranteed by the United States Government. Investors can buy them with confidence, knowing the coins contain their stated amount of gold. In addition, long-term savers can include American Eagles in their Individual Retirement Accounts (IRAs).

Ever since its discovery 5,000 years ago, gold has been treasured for its unmatched luster, beauty and intrinsic value. Today, gold continues to enjoy widespread appeal as an investment and storehouse of value. Gold is an internationally recognized monetary and financial asset held in reserve by major governments. It is so rare that all the gold ever mined could fit into a cube measuring just 20 yards on each side. Most importantly, gold can play a role in diversifying an investment portfolio, since it can move independently of stocks and bonds. What’s more, gold is a tangible asset – one whose beauty and artistry you can literally hold in your hands. When purchased in the form of legal tender bullion coins, gold can be affordable, as well as easy to buy and store. Americans purchase more American Eagle Gold Bullion Coins than any other gold coin. Produced by the United States Mint, Department of the Treasury, these coins are available in four denominations.

An important measure of any investment is its liquidity: How easy is it to resell? United States Government backing means that like the dollar, American Eagle Bullion Coins are accepted in major investment markets worldwide. They are also the most widely traded bullion coins in America, affording investors narrow spreads between buy and sell prices.

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Gold reached the level in late afternoon trade on the London Bullion Market, beating the previous record high of 1,032.70 dollars an ounce struck in March, 2008.

The dollar’s future as the world’s top currency was thrown into doubt on Tuesday as a report said Arab states had launched secret moves with China and Russia to stop using the greenback for oil trading.

Arab states have launched steps with China, Russia, Japan and France to stop using the dollar for oil trades, British daily The Independent reported on Tuesday, but the report was denied by Kuwait and Qatar and reportedly by other nations.

The run-up in gold has been largely driven by weakness in the dollar, which makes dollar-priced commodities cheaper for holders of stronger currencies, boosting demand.

Gold also wins support from fears about higher inflation because the metal is widely regarded by investors as a safe store of value.