Experts say that those same factors could help push the price of gold back to $1,000 an ounce again, a level hit earlier this year, and that the price of the precious metal could climb even higher.

"We still expect that the price of gold this year will reach $1,000 an ounce again and will probably go above this barrier," said Philip Klapwijk, executive chairman of GFMS, at a mining conference on Thursday.

Gold hit $1,011 per ounce in mid-March, before falling back. The average price last year was $695 per ounce. Those prices are well above the $250 an ounce reached in 2001, the World Gold Council says. Gold was fixed at some $923 an ounce on Thursday. "Our talks with experts show that they are very bullish and that a price of $1,000 an ounce again is all but guaranteed," said Greg Barnes, a director with TD Newcrest.

Speaking on the sidelines of the conference, Max Layton, an analyst with Macquarie Capital Securities, said that strength in various economies, such as China's, has boosted demand for commodities, including gold. Global inflation, however, hasn't increased in line with that demand. His banking group forecasts a price of $1,100 an ounce by late next year.

Trevor Turnbull, a director with Scotia Capital Inc, noted that since early 2001 the price of gold has lagged in relation to the increases in prices of other commodities.

"We believe that there is higher gold coming in the long term," Turnbull said.

Experts point to rising demand for gold in nations such as China, Turkey, Saudi Arabia, Russia and India, as offsetting a downturn in demand from developed economies such as the U.S. and Europe.

"Demand from India and China is overcoming weakness in demand from Europe and the U.S." said James Burton, chief executive of the World Gold Council, an industry group set up to promote gold use. The World Gold Council said in a statement this week that turmoil in financial markets, and growing inflationary pressures, helped demand for gold reached $20.9 billion in the first quarter of 2008, a 20% increase over the same period in 2007 and more than double the level of four years earlier.

Mauricio de la Cuba, head of the global economics department at the Central Reserve Bank of Peru, said that in real terms, the price of gold is still below the level reached in the early 1980s.

Various Factors Support Price

Economists note that high inflation is generally supportive of gold. They add that the price of gold generally moves inversely to the value of the U.S. dollar. There also appears to be an inverse relationship with the price of petroleum, some say. Experts also point to fast growing money supply levels as a factor that should continue to boost demand, adding that government policies to stimulate growth to offset weakening economic growth could also feed inflation and make gold more attractive.

Real interest rates are in some cases negative, experts note, reducing the opportunity cost of holding gold.

Experts also point to long lag times in bringing new projects on line and to higher costs of production, due to rising input costs, as factors supportive of a higher gold price.

Agreements to limit central bank gold sales have helped support the price of gold, while more recently central banks have even been seen purchasing gold, the experts add.

A planned sale of gold from the International Monetary Fund won't have a material effect on gold prices, Turnbull said.

Driven by high spot prices, various mining companies are unwinding their hedge books, leading to greater demand for gold.

Over the past five years some 60% of gold supply has come from mining, some 25% from scrap and around 14% from the official sector. Demand, meanwhile, comes 69% for jewelry use, 19% for investments and the rest for industrial use, the World Gold Council says.

Investment Demand Remains Strong

Meanwhile, investment in gold remains strong, especially with the use of exchange-traded funds that allow investors to purchase gold without actually taking possession. Investments in the ETFs have reached close to 900 tons.

Turnbull said that money flowing into the ETFs has been "sticky," and hasn't moved out despite price volatility.

"There is evidence of institutional investor appetite for commodities," the World Gold Council's Burton said, adding that industrial use also remains strong.

Burton added, however, that price volatility has made investors somewhat skittish.

"The gold price needs to stabilize for consumers to adjust to the new levels." he said.

On the downside experts say the high price of gold and price volatility have led to a weakening of demand for jewelry use. Gold prices could also be hurt by a rise in values of other asset classes, the experts say.