Why does the world flock to one precious metal in tough times?

Alan Coyner, the also slyly named administrator of Nevada's division of minerals (about 80 percent of gold mined in the United States comes from Nevada), doesn't buy the peak-gold concept but says there have been recent production declines in some areas like South Africa, where gold fields' output is the lowest it's been in decades. The easiest mining spots have been tapped out, so mines are getting deeper-two miles below the surface-and people are less inclined to work in the deepest mines. There are power and other practical issues that become especially problematic working that deep underground.

Coyner says that now, for the first time on an annualized basis, South Africa is not the world's leading gold producer.

"Assuming what they're telling us is true," says Coyner. "China is now the world's largest producer of gold."

If it's true, that's good news for China, since global demand for gold is now exceeding the supply. This, despite the fact that most of the gold that has ever been mined in the history of the world is still out there. And in any given day, a huge amount of gold is for sale, if the price is right. Coyner says that if gold's price went up to, say, $2,000 an ounce, getting it out of the ground in places that are now deemed too tough to mine would become economically viable.

There are other places where gold is relatively abundant that business deems overly risky for investment. Venezuela's outstanding gold deposits are being nationalized by its government. The same thing is beginning to happen in Bolivia. Returning assets to the people may be a popular idea in Venezuela, but it doesn't encourage business speculation. The Philippines has good deposits, but civil problems and a cyclone-prone climate make it a less-than-desirable location. In the United States, sentiment against the construction of new mines makes businesses leery of investing.

Another factor that complicates the supply chain is a lag between rising gold prices and increases in gold production: "You can't turn gold mines on and off like a water faucet," Coyner said. "In the U.S. it takes five years at a minimum to permit a new gold mine operation. If the price doubles tomorrow, it will be five years before you see that added production. That exaggerates the demand and the price because you can't bring the new gold on the market."

That brings us to the demand side of the equation, where the psychological factors surrounding the price of gold really come into play. As noted above, gold has industrial applications. But it's the investment in gold as a hedge against scary economic times-rising inflation, falling currencies, crashing stock markets-that can really juice the numbers. As we saw in the last few months, the price of gold can swing up and down just as wildly as the Dow whipsawing on news of the latest bank implosion or government bailout.