It is human nature to want to invest in assets that are riding high. Obvious reminders of this still in the memory are the dot-com bubble at the turn of the millennium and the commercial property boom (and bust) seen up to 2007.

Surely almost everyone knows what has happened to the gold price over the last few years. For those of you who don’t, Mr Gordon Brown sold 400 tons of it in 2001 at around 20 year lows of circa $250 per ounce.

It now stands at $1,350 per ounce. This represents an at or around all-time nominal high. Surely, the simple maxim of buy low and sell high (sounds simple but if only it was!) means that investors have missed the boat?

As always there are bulls and bears on this particular asset class. Today, everyone seems to have a view.

Financial journalist Merryn Somerset Webb is in the bullish camp. She thinks the “second round of quantitative easing means a wave of newly created money is set to pour into global asset markets, undermining paper currencies as it does so.”

Couple this with inflation worries and “it is no wonder the gold price has soared”. She goes on to say:

“Should we sell? We think not. Let’s remember why we started buying gold in the first place. We bought because we were worried about the value of paper currencies. And in a time of uncertainty we wanted to hold something that we knew had a history of maintaining its real value.

“That hasn’t changed. As for uncertainty – we see even more of it now than we did in the wake of the dotcom bubble. That means gold has to remain a core part of our wealth-preservation strategies. We’ll review things again at $2,000.”

Others are even more bullish. Jeff Clark, senior editor of Casey Research, puts the current “high” price into context by looking at historic prices.

“Gold rose from $35 in 1970 to $850 in 1980 – a factor of 24.28. Our price bottomed in 2001 at $255.95; multiply that by 24.28 and you get a gold price of $6,214 per ounce”.

Clark, obviously, is a gold fan. But had you invested in 1980 and sold in 2001 you would have seen a 70 per cent fall in value so do not get too carried away with Clark’s argument.

As with the price of anything, the gold price is determined by supply and demand. You would think a higher gold price would lead to rising mine production – but that is not happening.

From 1999 to 2009, the average annual gold price rose 248 per cent, yet gold production fell by 6.6 per cent. Will this, at some point, cause concern as more and more buyers enter the market? Not according to Frank Voisin, who is a gold bear.

“Nearly the entire amount of all gold ever mined from below the earth’s surface still exists today,” he says. “Gold is not a material that is destroyed, like oil and natural gas.

“Gold is mined and refined and some portion of it is turned into items for sale, but it is not destroyed …. the world supply of gold is on an upward march and has been since the first ounce was mined.”

He thinks gold is unsustainable at present levels in respect of demand and keeps things (nicely) simple.

“Scenario One is that investment-demand is stable,” he says. “This scenario will lead to lower gold prices, as supply will continue upward.

“Scenario two is that investment-demand declines. This scenario will lead to drastically lower gold prices for a period of time until supply begins to decline as mines are mothballed and the gold recycling market declines.”

So, who is right? As with many things these days does the answer lie in China? Often, we think of India when it comes to gold as it is the world’s largest consumer of the precious metal.

Surprise, surprise, China is the second largest consumer – and the world’s largest producer. In 2009, China announced they had official gold reserves of 1,054 tons.

A recent Financial Times article said China is looking to free-up its gold market by increasing the number of banks allowed to trade bullion internationally and announcing measures encouraging the development of gold-linked investment products.

The new policies are seen as likely to increase liquidity in the domestic gold market and spur the development of gold financial products. If this pans out, then the bulls may well still have it in spite of the current perceived price high.

* Trevor Law is a director with Montpelier Group (Europe), the privately-owned independent financial advisers located near Solihull . E-mail: tilaw@montpeliergroup.com