"Thanking you for your balanced and informative opinions over the years, largely keeping me on the straight and narrow!!! A very quick question. It is widely reported that physical gold sales are largely booming, various governments are repatriating physical gold, monetary easing is continuing on an unprecedented scale, new vaults are being built to accommodate the anticipated demand for physically holding various precious metals and lastly that various "supposed" bullion funds hold largely paper contracts. In fact that "paper" gold probably constitutes 99 out of 100 contracts. In view of all of these factors, especially the high demand, why is the price of gold largely static? Is there something that us lesser mortals should understand?"

David Fuller's view Thanks for your thoughtful words and an email of general interest.

I have previously mentioned that as more people became interested in gold, relative to the 1980s and 1990s, it would at times perform like any other asset. In other words, in the global beauty contest, if lots of people own gold, we should assume that many of them will be sellers when sentiment and the short to medium-term uptrends weaken.

Let us compare gold with Apple Inc, in terms of sentiment. Both have been revered for a number of years but that leaves them susceptible to reappraisal, as we have seen.

Historically, many people have viewed gold as a hedge against uncertainty and also disaster. I feel this is best summarised by the fact that gold has held its value over time, unlike paper money. Some of the uncertainty and fear over economic factors has dissipated during the last year and a half, particularly as many stock markets surged higher. When gold underperformed due to profit taking, it also attracted short sellers.

However, Eurozone concerns are back on the front pages, temporarily, following the banking crisis in tiny Cyprus, and related contagion fears. This has helped to firm the price of gold in USD, which continues to find support in the lower side of its range since late September 2011. Meanwhile, gold has continued to appreciate against soft currencies, such as the yen in recent months.

I continue to regard gold as hard money over the longer term, but its price will inevitably experience reactions, as we have seen over the last eighteen months, particularly after somewhat accelerated moves to the upside.