Gold is sill the favoured hedge against the loss of faith in paper currency at
Coutts, despite the recently reported 13 per cent fall in jewellery demand, often seen as the key driver for the gold price.

Investor demand for gold has increased slightly in the past year, but fell in the second quarter of the year. Central banks have partly stepped in to pick up the slack in demand from investors and consumers, with central-bank buying hitting a record level of 157.5 tonnes in the three months to 30 June.

The wealth management arm of
Royal Bank of Scotland sees gold as a risk-diversifying asset for investor portfolios, especially as central banks are set to extend and expand their use of unconventional monetary policy. Currency depreciation and domestic inflation are seen as potential side-effects of money creation initiatives such as quantitative easing.

After a big sell-off in the previous decade, central banks turned net buyers of gold in 2009 after the slashing of interest rates and the adoption of quantitative easing in many of the major developed economies. "The reaction of central banks to this was to stop their sales and, especially among the central banks of emerging economies, to increase the proportion of their reserves held in gold," Coutts says.

The Federal Reserve is widely expected to stimulate its economy through asset purchases later this year. It is debatable whether this will take place next month or later in the year to give the economy an extra boost before the presidential election in November.