I understand it as a geopolitical hedge and also in troubled times there's the primal desire for something tangible of value (was feeling that way myself last October). Ideally I'd like a small amount of physical as a hedge for SHTF situation.
However, I've been hearing "gold 2000 next year as gov't prints" for 2 maybe 3 years straight. There's a whole industry that seems to be built around convincing folks to "believe" in gold. I guess 2000 is bound to happen some time and I would go long sub 600 as a trade.
I am going to miss Freddy, I actually started to like him. It's nice to have an optimist around and he was really chipper, polite and probably a fun guy in person. I won't start a "bring freddy back" petition but half hope he takes c's offer.
You're not going to see sub-600 gold. I've seen reports that show Indian demand (most of gold's physical demand comes from Indian jewelers who sell gold-plated necklaces and bracelets for weddings, especially during the monsoon season) has actually been flat to down in the last 6 months. However, the gap is being filled by massive investment demand (think China, Russia, ECB diversifying away from the dollar as a reserve currency). There is a diminishing set of investment opportunities in the market today.
The obvious ones are long precious metals and short government bonds. And there's a lot of intelligent money in the sidelines that will have to go somewhere, and it sure as hell doesn't wanna go into AAPL, GOOG or BBBY. Emerging-market infrastructure is another destination, but the challenging credit market (and the huge amount of projects getting scrapped) makes it a tough field to make money in (state and federal governments are filling the void there -- at least that's what's happening in Brazil; my home country).
I have some physical gold and silver myself. I bot some gold a few years back at 640. I added last year at 750 when shi_t started hiting the fan. Right now it's tough to buy more because gold is extremely overbought, but it remains very cheap relative to the DOW and oil. I think 2,000 is the first step. Longer-term, we'll see 5,000. You can write that down.