Mark Upchurch, the purchasing manager at heat exchanger manufacturer Rocore Thermal Systems in Burkesville, Ky., has seen the price of silver increase by 80% over the past two years. Meanwhile, buyer Clay Harris at Poma of America in Grand Junction, Colo., a manufacturer of ski lifts, has seen his gold costs increase by more than 50%.

Looking ahead, market analysts see further cost inflation ahead for these and such other precious metals buyers as Ted Fischer at First Continental International, a chemical products maker in Newark, N.J., and Ken Meyers at Randell Manufacturing, a producer of commercial food service equipment in Edgemont, Pa.

Spot prices of gold have been around $800/troy ounce this quarter as the U.S. dollar has continued to weaken against other currencies and crude oil has surged past $90/barrel. In turn, forecasters boosted 2008 projections well above the expected $700 price average for 2007.

Analysts say continued upward pressure on overall commodity prices, especially in the energy sector, should also allow gold to settle in a higher range. For that reason, these prognosticators also boosted price outlooks for such other precious metals as silver, platinum and palladium.

The Federal Reserve's Halloween decision to cut the key federal funds rate another quarter percentage point to 4.5% "leaves the door open for a continuation of prior trends of a weak U.S. dollar and strong gold," write analysts Camilla Sutton and Stephen Malyon at ScotiaMocatta in Toronto. "We would expect both silver and gold to remain high amid a weak-U.S. dollar environment." At present, precious metals are selling 100% higher than in 2002; the outlook for next year is further inflation, bringing the market basket price average to 110% higher than in 2003.

Gold prices often rise during times of heightened economic uncertainty, as it serves as a store of value when other investments begin to look too risky. Gold also moves in an inverse relationship to the U.S. dollar, as it serves as an alternative investment against the currency with the largest global circulation. In fact, the highest market prices in nearly three decades is aggravating buyers of industrial-grade precious metals but triggering a surge in investor interest for bullion by speculators and bankers who view these commodities as investment hedges against inflation.

Meanwhile, the World Gold Council in Washington issued a report in late October noting that "dollar demand for gold in the jewelry, retail investment and industrial sectors all reached new record heights in the second calendar quarter of 2007. Global demand for gold jewelry showed the strongest surge, reaching a record $14.5 billion, 37% higher than the second quarter of 2006, with particular strength across the key gold markets of Greater China, India, the Middle East and Turkey."

Looking ahead, mavens are bullish UBS Securities has a $760/oz gold forecast for 2008 due to economic uncertainty stemming from the sub-prime credit crisis and strong global demand from such end-users as jewelry makers. "The past twelve months has seen strong jewelry demand growth despite higher prices," says analyst John Reade at the UBS Securities' offices in London. "Potential for a weaker U.S. dollar, concerns about the credit crunch and the impressive rally have brought investors back to gold in ways not seen for years, or in the case of safe-haven buying, for decades."

Senior Analyst Nikos Kavalis at GFMS Group in London says that forecast—and his 2008 projection of $775—both issued in early October, "now seem somewhat conservative...given the latest price developments in the gold market and our view that the problems the global economy is facing will persist in the following year."

Investment bank Morgan Stanley & Co. of New York, the second-biggest U.S. securities firm, has forecast that gold may average $800/oz in 2008 due to strong global growth and spreading inflation problems. "Inflation and dollar concerns have temporarily surged to center stage," says the report, "but growth in demand, particularly from an expanding middle class in the developing world, will continue to be the main driver of gold prices in the long run."

"The dropping U.S. dollar, inflation concerns and, more recently, a waning appetite for risk among investors are key in bringing gold to a recent high (and) important factors in pushing 2008 gold prices toward the $800/oz annual average price target," say precious metals analysts at BMO Capital Markets in New York.

"We continue to be bullish on the precious metals and...have increased our 2008 calendar year average forecast for gold to an average of $814 an ounce," says J.P. Morgan & Co. analyst Michael Jansen in London, who believes industrial and investment demand will remain strong for some months to come.

Interestingly, bankers believe global economic growth and demand for gold are becoming "de-coupled"—that is, detached—from the U.S. economy, which is braced for further fallout from the crisis in credit markets caused by problems in the high-risk mortgage sector. The Morgan Stanley analysts, for example, say investors appear unsure about the impact of the recent series of U.S. interest rate cuts, which has dropped the value of the dollar vs. the Euro and other currencies, making gold and other precious metals cheaper for non-U.S. investors.

However, the analysts at the Australian Bureau of Agricultural and Resource Economics (Abare) in Canberra only have a $685 forecast for 2008 due to anticipated expanded supply.

South Africa is the world's largest producer and gold mine production there has declined substantially over the past decade, primarily as a result of an increase in production costs and a decline in rand-denominated gold prices. But, with the dollar weaker, an Abare report says world mine production in 2008 will increase by 3% to 2,606 metric tons, largely from higher output in Australia, China and the United States and a partial recovery in South Africa's gold production.

Meanwhile, the price of silver is averaging $13.30/oz this year, almost double the $7.31 price of 2005 and well ahead of $11.55 of 2006. The early forecasts for the 2008 price average range from $14 to $15. "Silver prices have been weighed down by economic uncertainty...specifically, silver's exposure to industrial demand has made prices vulnerable to general economic growth concerns stemming largely from fears concerning a U.S. growth slowdown," according to the Morgan Stanley bankers.

John Hill, director of metals research at Citigroup in San Francisco, forecasts silver to hit $15/oz in 2008. However, National Bank Financial, the Canadian investment dealer in Toronto, has adjusted its silver price forecast to reflect a 50:1 ratio with the gold price. So, $800 gold will translate into $16 silver. Analysts Michael Dudas and Anthony Young at Bear Sterns in New York have a silver-price average forecast at $14.50 for 2008. "While silver prices remain highly correlated to gold, we believe that higher demand for silver, coupled with supply lags will lead to higher average prices," they write to clients.

BMO Capital Markets in New York, which also has a gold price forecast of $800/oz for 2008, has boosted prediction for other precious metals, as well. "Reflecting the view that other precious metals prices cluster around the broad trends set out by gold and considering each metal's unique fundamentals, we have also increased our price forecasts for silver, platinum, palladium and rhodium," write analysts Bart Melek, David Haughton, Andrea Cheung, Craig Miller and John Hayes in a joint report.

Their 2008 silver price forecast has been increased to $15.50/oz and their platinum forecast was boosted to $1,350/oz—as compared with $1,280 projected for this year.

Platinum has been underpinned in recent weeks by mine closures in South Africa, the world's largest platinum producer. One of two shafts at Impala Platinum's Marula mine remained closed for some time following a fatal accident. The Marula mine produced 65,200 ounces in the year to June 2007 and Impala says the closed shaft produced half of the mine's monthly average output of 6,000 ounces.

"Despite the lost output being nominal, the platinum market is estimated to have swung heavily back into deficit this year and stocks have remained very low," suggest the analysts at Barclays Capital in London. "Thus, even the minor disruptions like Marula have buoyed platinum prices." Michael Widmer, director of metals research at Calyon Corporate and Investment Bank in London forecasts that this year's market deficit will be 100,000 ounces, who suggests "platinum prices should remain high in the near-term."

Platinum bullion is averaging $1,365/oz this year, up 52% from $896 in 2005 and 19% above the $1,147 of 2006. Platinum's price increase in these past three years is largely due to hedge fund investment rather than fundamental demand, says analyst Jeffrey Christian of the CPM Group in New York. "More hedge fund investors have more money sitting in cash waiting for good investments than in the history of mankind—and platinum looks attractive to them."

Some industry experts are pegging the 2008 market price somewhere between $1,400 and $1,500. Reason: Solid investment and industrial demand. The auto industry accounts for around half of the world's platinum fabrication demand, with the rest coming from the jewelry, petrochemical, electronics, dental and other industries. More motor vehicles are being built and bought in China, India, Russia, Eastern Europe and Brazil even though the U.S., Western Europe and Japan markets are showing slow to no growth.

For palladium, analysts at Natixis Commodity Markets in London have been projecting an average of $360/oz, up from $320 in 2006. For 2008, they and other analysts are forecasting an increase to $375. Just like platinum, the palladium market has been plagued by persistently low inventory and production disruptions. "There has been a certain amount of industrial buying interest at these lower levels," says a new Natixis report.

Also, tighter emissions standards and growing engine size has meant more platinum group metals used per car. Note: While Nissan recently announced it will begin using half as much platinum group metals in its manufacturing processes, that isn't expected to begin until late in 2008. Nissan Motor's Renault unit has developed a new catalyst for gasoline-powered cars that is projected to use only half the precious metal components vs. conventional platinum group catalyst currently available. Exhaust-cleaning automotive catalysts comprise a mix of platinum, rhodium and palladium. Within the catalyst, the chemical reaction between the precious metals and exhaust gases converts them into nontoxic compounds such as nitrogen, water, and carbon dioxide.