Declines in gold production at South African mines are causing supply shortages coupled with growing demand for the precious metal.

According to investment firm Lear Financial, a lack of major new gold discoveries is also adding to the lack of supply. Political instability in South Africa is holding up production and Russia is holding back a greater proportion of its own gold to keep as reserves.

In South Africa, mining unions are demanding 20 per cent wage increases for mine workers from major gold producers such as Gold Fields and AngloGold Ashanti.

Another factor expected to drive up demand for gold is the possibility of significant dollar devaluation, brought about by increasing geopolitical instability across the globe and a weakened US economy.

Lear's gold investment advisor Kevin DeMeritt said the price of gold could reach as high as $1,000 within a year.

He added: "Gold is a traditional means of hoarding wealth, and represents a way to buy economic security in much of Asia and the Mid East. And in these parts of the world individual wealth is growing rapidly."

Goldbug, 25 May '07