"I cannot think of, nor have I read of, any coherent economic reason for gold at this level," said William Gamble...

I came across this quote Wed night and was astounded.  Then when I read your bio on your site, I was doubly astounded at the amount of education it took to come up with such a ludicrous statement. 

Bubbles are bubbles. I don't care if you are talking about tulips or oil. At some point markets fueled by animal spirits lose all sense of reality. Any market that rises that fast should cause pause

How about the economic reason called supply and demand??  How about mine production that peaked 8-10 yrs ago, declining ore grades,  

True. So if mine production has been declining over 8 - 10 years, why hasn't the price of gold been rising steadily over 8-10 years? Why all of a sudden over a few short months has it been increasing almost exponentially?

 central banks flipping from sellers to buyers, and a financial world in turmoil and radical change, drowning in fiat currency and now ever faster with the "Miracle Cure" of quantitative easing?   

All true. But this has been going on for a year. Governments all over the world have been flooding the market with money. Yet certain economists are still predicating deflation.  

We have a massive increase in the supply of money, with governments printing it to finance their ever-expanding budgets and no end in sight - extended unemployment benefits, extended housing credits, the health care plan...it's only getting worse at a time tax receipts are falling - therefore more money printing.

All true and I agree. I am reading the health care bill all 687 single spaced pages. There is nothing in it that controls costs. We are spending, in my view wasting, hundreds of billions on an unnecessary war. Worse the war does not really stimulate the US economy. All of it borrowed, which implies that eventually interest rates will have to rise as investors lose faith in our ability to pay the money back. 

Besides printing money, the other reason that interest rates are low is because the economy is so bad. But you do not get inflation in a bad economy. If there is no inflation and the economy sucks, why buy gold a traditional inflation hedge?  

You say higher interest rates will move money back into bonds, but money has been there for almost 30 years and is still greatly there...interest rates have a mountain to climb before rates, currently at all time lows, are satisfactory for the risk of the paper.  Also - how do think this barely limping economy would take higher rates right now? Like giving the victim of a concussion a whack in the head.

Correct. A barely limping economy will be hit by higher interest rates. But even the US cannot print money forever, because the bond market will eventually punish it with higher rate, which is happening now in Greece. There is an assumption that the stimulus will go on forever when actually governments around the world are either voluntarily or being required to withdraw the stimulus even in the face of a weak recovery.

Also the world economy does not look good. The Chinese lent out $1.2 trillion to unprofitable state owned industries. A massive over investment that could lead to a trade war. (see Michael Pettis http://www.ft.com/cms/s/0/e8cdfefc-dee3-11de-adff-00144feab49a.html) All of this does not create a vibrant overheated economy which is usually necessary for inflation to make gold, an unproductive asset, attractive.

 As for gold's proper price, who knows, but here's an interesting and cons 

 ervative scenario...imagine it fell to $350 after hitting $850 in late 1980, stayed at $350 for 6 years, then climbed 7.5% a year starting in 1987 to account for all the debt that is being piled onto governments, people, and corporations, as well as the new financial instruments (of course including derivatives).  You get a gold price of $1,845 at year end 2009. Again, I regard that as a conservative hypothetical. 

Financial people love history and so do I. Still after having lived through a fair amount of it, I am suspicious of its ability to predict anything. World economies are dynamic. So all economic projections at some time will be wrong.

As to world economic chaos, certainly a good reason to buy gold, so why now? Why didn't it go to $1200 last year? Or last March? Why when most forecasts are for weak growth, a stable system and low inflation are people piling into gold? If inflation and monetary excess were what worried the market, why aren't interest rates climbing? When you get one part of the market predicting one thing and another part of the market predicting another there is likely a distortion that has nothing to do with economics.  

 Here's my website/blog, you can see I've been talking about silver & gold for a while, amongst other topics.

www.spdbrnr.wordpress.com