Economists throw the words 'gold bug' around in a manner intended to be insulting. What they imply is someone who sticks with gold through thick and thin regardless all that is going on in the world around them. This begs the question as to what one calls a person who knocks an investment periodically over 8 years while it rises from US$275/oz to US$1,250/oz.

Just so they get the message I would point out that every experienced investor is aware that nothing goes up in a straight line forever. It will be the same with gold, but the important thing will be to differentiate between a temporary reaction and a full blooded retreat. Events change around us and, as the global financial crisis proved, they cannot be anticipated even by the brightest of economists. Even now some appear not to have taken fully on board the basic facts that China is a bigger energy consumer than the US, and the biggest buyer of cars in the world.

Increased demand means rising prices and those of the most basic commodities are also moving in the same direction. Oil is holding at a price of around US$80/barrel when it tends to be lower at this time of year. Food prices are already starting to suffer from the drought that has affected Russia's grain belt which runs from the Black Sea to Siberia and water is an ever-growing problem. Domestic inflation rates in China and India are already rising and we cannot insulate ourselves in the West. Remember what we used to say? 'America catches a cold and Europe gets pneumonia'. Now we are in thrall to the East.

But let's forget the boring economic arguments this week and take a look at supply and demand for gold from two new viewpoints. First, the advances being made in its industrial use. This is an area where gold has always lagged silver which has multiple uses in the electrical, medical and photographic industries. Platinum also has a key use as a catalyst to clean emissions in the motor industry which is why its price is up there with gold. Now we hear that a team of scientists at Oregon University reckon they have found a way to release energy from bacteria contained in raw sewage. Key to success is coating the graphite anodes with a minute amount of gold. A minute amount of gold on an anode becomes a massive amount of gold if the technology is replicated throughout the world and what would this do for the price of gold?

And then, inevitably, there is China which has just announced measures to liberalise its local gold market even further. Just as with the Thai farmers who traditionally put a bit of gold under their beds after a good harvest as insurance against worse times ahead, the Chinese take the same basic view. When I ran a small party in Chinatown for a Welsh gold mining company some years ago the owners of the restaurant cut the bill in half in order to participate in what they called 'the luck of gold'. It has an essential role in the psyche of people in Asia and the Far East no matter how often Martin Wolf, the chief economics commentator of the Financial Times, describes it as funk money.

So let's do a few simple sums. The present population of China amounts to 1.32 billion people of all ages. Suppose everyone buys 1 gramme of gold in 2010 - 1 gramme not one ounce- it would take 1,750 tonnes of gold off the market and that is more than half the world's annual production. Do the same sum for India which has a population of 1.15 billion and rising, just like China, and total production is accounted for. In both cases also there is a massive migration from country to towns as people seek higher income. And higher incomes increase the likelihood that some gold will be put aside for investment or decoration or both.

By Charles Wyatt