COULD 2007 be the year when the price of bullion hits an all-time high? Seven years ago when the price was $250 and the world was in the the grip of a technology boom there was a sense that gold was so last century. But it has staged a remarkable comeback.

Ross Norman at Thebulliondesk.com, who has been the best bullion forecaster for the past four years, predicts the metal will hit $850 an ounce this year, a record level last seen in January 1980. That was when refugees from Iran and Vietnam were pictured arriving with their entire fortunes in gold bars. Global inflation was out of control and people were queuing outside jewellers in London’s Hatton Garden to sell their baubles for cash.

In those days, gold was seen as the ultimate store of value. It still is in many countries, but there is also growing consumer demand for the metal, particularly by newly enriched consumers in China, India, Russia and Brazil.

As the graph shows, despite consistent selling by European governments, gold has been a stellar performer for the past six years and last year it rose 23%. Gold was once the great contra-cyclical performer, particularly attractive when equity markets were in freefall or the dollar was weak. But since the turn of the millennium its run has been in line with equities and other commodities.

However, gold’s contra-cyclical qualities should not be forgotten altogether and its recent run has been helped by the weakening dollar and inflation fears.

What has helped the price move most is the creation of exchange-traded gold funds. This has enabled institutional investors to gain exposure, and some, such as the J Sainsbury and BT pension funds, have made tidy profits by trading gold.

Since the 1970s, when the gold price stopped being fixed, one of the best guides to its value has been the oil price. For decades, gold traded at a ratio of 16 barrels of oil to every ounce of gold.

With the oil price pushed up to the levels we have seen over the past few years, that ratio is now being tested. As gold closed the week at $609, it would be trading at $840 an ounce if the oil barrel to gold ratio was applied.

The gold run has made some of the 12 European central banks re-evaluate divesting their gold reserves, and one even turned into a buyer last month.

If the Gold Council ever found a way for retail investors to gain exposure to the metal — other than by physically buying it — then the price would really fly.

There are commodities that do look overpriced after rises last year. Nickel was up 148%, zinc 123% and tin 78%. These saw sharp falls last week, but it would be wrong to bracket gold alongside them.

Pie in the sky

THERE is a story behind environment minister Ian Pearson’s extraordinary attack on the airline industry last week.

For those who missed the front page of The Guardian on Friday, Pearson lambasted airlines for not doing enough to curb their greenhouse-gas emissions, but reserved special vitriol for Ryanair and its chief executive, Michael O’Leary.

Pearson said the Irish airline was “not just the unacceptable face of capitalism, they are the irresponsible face of capitalism”. For good measure, he added O’Leary was “just completely off the wall.”

Pearson’s comments evince the government’s frustration with what it perceives as the airline industry’s unwillingness to adopt its plans for a worldwide emissions-trading scheme.

The plan has its supporters — Easyjet is in favour, while British Airways wants a Europe-wide scheme (“only just playing ball” in Pearson’s view) — but plenty of others are anti, including Lufthansa, US carriers, and, most stridently, Ryanair.

But Pearson’s frustration may have another source — a realisation that the government’s plan to bring airlines to book are impractical and hypocritical.

The idea that the UK can with a flourish impose its emissions-trading scheme on a multinational industry is nonsensical, inviting at best ridicule and at worst a host of retaliatory actions from governments across the globe.

A scheme for European flights could be managed by the European Union, but an international scheme would require the efforts of the United Nations or the International Civil Aviation Organization — in other words, don’t hold your breath.

What is more, Gordon Brown’s recent doubling of air-passenger duty has lost whatever goodwill existed in the industry towards the government. While Brown cited the green agenda as a reason for the increase in the tax, it is patently a simple revenue-raising measure, with little or no connection to actual emissions.

The hypocrisy comes with aviation’s actual contribution to emissions. Airlines generate about 2% of man-made greenhouse gases, a tiny proportion compared with other modes of transport and power generation.

Although their share of the total is growing quickly — and there remains deep unease about the effects of their emissions on the chemistry of the upper atmosphere — it gives O’Leary and the other naysayers a powerful get-out clause. Why attack airlines, they can smugly say, when cars and power stations are the real offenders? Pearson should also look at the government’s plans for runway development in the southeast.

Two new runways are on the way, at Heathrow and Stansted, which will allow UK aviation to continue to grow over the next 30 years.

The depressing thing is how a good idea has been buried by name-calling. Emissions trading does make sense for the airline industy, and a European-wide system would be a good start.