Since April 10, 2001 when the price of gold hit a low of about $256/oz it has been steadily increasing on the back of higher investment related demand (represented 37% of total demand in 2010 up from just 4% in 2000), higher overall demand (3,812.2 tonnes 9% higher than 2009), and greater interest shown in the yellow metal by Asia (China's demand for bars and coins accounted for 13.5% of all gold demand by value, that's up 70% in just one year). (World Gold Council) Jewelry accounts for roughly 50% of gold demand down from 85% in 2000 but up from 43% in 2009. In the first quarter of 2011 Chinese demand for gold (25% of all gold demand) exceeded demand from Indians (23% of global gold demand) who were previous to that the largest consumers of gold (90.9 metric tons compared to India's 85.6 metric tons, China's represented a doubling over the previous year) (China Is Now Top Gold Bug); In 2010 consumer demand in India led all countries, it accounted for 25% (963.1 tonnes) of all global demand for gold, that's up from 16.6% the year before. In other countries like Greece, economic turmoil is causing demand for bullion to spike. (Financial Times: Greek savers rush for gold)
China: If, as many suggest, the People's Republic of China lets the RMB increase in value relative to the USD, that will weaken demand for gold in the short term as investors see the new exchange rate as a sign of economic stability but in the long run, the stronger RMB will increase Chinese demand for Gold due to its greater purchasing power. Also, a stronger RMB will raise Chinese import demand, indirectly propping up gold demand abroad too.
While gold demand is rising from all areas (consumer, jewelry, central banks, industry: total up 9%) total supply is not (up only 2% in 2010) and that's putting even more pressure on the price. (http://www.gold.org/download/pub_archive/pdf/GDT_Q4_2010.pdf) Output from gold mining makes up about 60% of the supply (gold output from mining declined in the seven years leading up to 2008). Another reason to expect higher prices; Companies are closing their hedge books (Barrick Gold led the charge in 2009 it cost them $5.6B, AngloGold Ashanti in October 2010 after it raised $1.58B to close it, Kinross Gold removed 90,000 ounces hedged in the first quarter of 2011 however it was the only major company to do that in 2011). Total gold hedged by miners amounts to 4.88 million ounces (1Q 2011); The first quarter of 2011 was just the second of 21 quarters since 2006 to show any increase in net hedging. (Gold miners hedge in Q1, big sales unlikely: report) Also to consider, the ceo's of Newmont Mining and AngloGold Ashanti the second and third biggest gold producing companies, predict that gold will exceed $2,200 an ounce by 2012. (reuters: Mining CEOs expect gold prices to keep rising)
If, as Franco-Nevada suggests, Asian central banks increase their minimum weighting in gold to 15% another 17,000 tonnes would be added to demand over the next few years. Gold ETF's could hoard more gold too with interest in physical gold higher than at any point in their history (in the USA they only date back to November 18, 2004, StreetTracks Gold Trust exchange-traded fund but since then they accounted for 2,300 tonnes of net demand). Gold companies for the most part have wide profit margins making them popular among both institutional investors and others.