Let us preface this entry with the clear notion that we have no idea where the price of gold is going in either the short or long term. That being said, we get interested when we begin to hear big round numbers being bandied about as target prices.

Chris Flood at the FT.com reports that a gold consultancy notes that the old high of $850 an ounce could be surpassed. While the report goes into the supply/demand dynamics for gold, it seems the current driving force seems to investment demand.

Gold is bene�ting from a general rise in investor interest in commodities both for speculative purposes and as an alternative asset to equities, bonds and cash.

That is not say that supply and demand have no effect. E.S. Browning in the Wall Street Journal examines the path that gold takes from mine to end demand. What is interesting are the changes taking place in the gold cycle that have made this bull market possible. From difficulties in finding and exploiting low-cost reserves, enhanced environmental regulations, increased jewelry demand from the emerging markets to a greater willingness on the part of central banks have lead to higher prices.

Let us not forget the role of the two gold bullion ETFs have played as well.

A pair of exchange-traded gold funds created in 2004 and 2005 are helping to drive investor interest in the metal. These funds, which are set up like mutual funds and trade on stock exchanges, allow institutional investors and even individuals an easy way to bet on gold. As more money flows into the funds — which total about $7.3 billion today — more gold must be purchased to back them.

Obvious users of the gold ETFs are market timers. Mark Hulbert at Marketwatch.com notes gold timers are not nearly as exuberant as they could be given the strong run in the metal. That is in contrast with bond market timers who have not gotten as bearish as they could be with long term treasury yields over 5.0%. To Hulbert this makes being long gold a better bet.

Markets of all kinds often move far beyond where they should be given market fundamentals. Contrarians and fundamentalists are well advised to respect the momentum seen in fast moving markets like that of gold today. While the gold market is beginning to attract attention, the overwhelming positive sentiment seen at tops does not seem to be in place — yet.