Gold should remain in investors’ portfolios until US interest rates return to historical norms and public finances are put on a solid footing, argues Coutts, the UK private bank.

There is a case for holding gold in the short to medium term even though the price of the yellow metal has surged to a record level of almost $1,500 per ounce, Carl Astorri, global head of economics and asset strategy at the bank, argues in a note.

“Having bounced over 16 per cent from its [gold’s] January lows, we would expect some consolidation. However, we remain positive over the medium term, until a rapid normalization of US monetary policy or a credible plan to put the US public finances on a sustainable path erode the more cyclical, or near-term, support for gold,” he said.

“The key risks facing the global economy, which gold provides a hedge against, include inflation, an oil supply shock, sovereign default and currency devaluation being used as a means to solve the fiscal woes of the US, eurozone, UK or Japan. Gold is the one currency that central banks cannot print more of to buy up government debt,” Astorri said.

Astorri said that gold has been in a “secular bull market” since 2000, driven in part by the steady erosion of the dollar, and emerging market banks increasing their gold holdings and cutting exposure to the greenback.

Commenting on whether the gold market resembled a bubble, he said: “Using the 1970s gold market bubble and the 1990s tech equity bubble as templates suggests that gold has not yet broken away from fundamentals and become a bubble. The combination of secular trends, historic investor behavior, incremental demand drivers from emerging markets, the move away from the dollar and demand for a hedge against fiat currency weakness would all support further gains for gold.”