The return of gold as currency

Gold has fallen back after reaching a four-month high around $980 an ounce. But the long-term uptrend looks intact, with the yellow metal likely to break its March record of $1,030 before too long. The jump in US consumer prices to a 17-year high last week and the eurozone's record price rises have intensified fears of inflation, highlighting gold's appeal as a store of value.

As Erste Bank notes, real US interest rates are negative, which is traditionally good news for gold: negative inflation-adjusted interest rates point to an inflationary environment and mean investors don't lose out on interest income by holding gold.

And then there's the worsening credit crunch, which is threatening the US and global economy. Fears over Fannie Mae and Freddie Mac and the cost to the US government of taking on their huge debts as they prop them up, as well as the integrity of the US banking system, continue to undermine faith in the world's reserve currency.

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With no other paper money looking any better, it's no wonder gold is once again a "global currency", as the FT said earlier this year. Its gains against various currencies show that the oldest form of money is being "remonetised", says David Fuller on Fullermoney.com.

While investment demand has been climbing, over the longer term mounting wealth in developing countries should also bolster jewellery demand. On the supply front, we may have reached the point of "peak gold", says Erste, with output stagnating or declining in eight of the twelve most important gold producers. Finally, the gold/oil ratio (the gold price divided by the oil price) also points to plenty of upside. It's now around seven but the historical average since 1945 has been 17.2, says Charles Nedoss of Peak Trading Group.