DAVID BERMAN
RTGAM



Call it a meaningless number, if you like, but gold's move above $1,500 an ounce is having at least one impact: It is driving target prices higher. UBS analyst Dominic Schnider raised his target price on gold to $1,650 an ounce after his previous target of $1,500 was met.

Gold's remarkable gains of about 460 per cent over the past decade have been attributed to stock market volatility, concerns about inflation and the steady erosion of the U.S. dollar. The latest push into record-high territory, though, came after Standard & Poor's warned the United States this week about its long-term budgetary challenges, cutting the country's credit rating outlook to "negative" from "stable."

Let alone that the S&P warning, according to some observers, might force the U.S. to get its fiscal health in order or that it merely reinforces what everyone already knows. For gold investors, according to Mr. Schnider, the S&P warning is good news: "For gold, we think the latest S&P action will secure sufficient demand to leave the market under-supplied."

He estimates that a 3.5 per cent increase in mine output combined with a 3 per cent increase in scrap isn't enough. "Hence, only a higher price can balance supply and demand," he said.