We hadn’t quite appreciated how much of a gold bug CS strategist Andrew Garthwaite is. Turns out he’s smitten, and has been since March 2007. A 24-page epistle to the investment bank’s clients on Friday set out his case:

1) The real Fed Funds rate looks set to stay below 2%

There’s plenty of history showing how the gold prices rises when Fed Funds is below 2 per cent. Simple as that.

2) BoJ and the ECB could try to cap currency strength

While excess liquidity from QE and other stimulus has puffed up the price of just about everything - including gold - there’s a chance of even more liquidity sloshing round the system if European and Japanese central bankers decide the dollar’s decline has gone far enough. (The pain threshold might be at Y80/$.)

3) Gold is effectively an insurance policy

Against both debt monetisation and potential governmental default. Fixing Western deficits through spending cuts would ultimately be bearish for gold, but balancing the books in the US and the UK would require cuts of 27 per cent and 20 per cent, respectively. That doesn’t look possible, politically.

4) Central Banks under-own gold

If gold is good for ordinary investors, it should be good for sovereign holders too - and China, Japan and Russia are woefully under-weight compared with Europe and the US. CS calculate that if Japan and China were to increase their central bank holdings of gold to 10 per cent of reserves, they would need to buy $250bn of the yellow metal. At current prices, that is 2.8 times annual world gold production.

5) The real gold price is still well below previous highs

It might have spiked recently, but in real terms remains a long way short of prices seen in the early 80s.

6) Gold is still an under-owned asset

Watch how holdings of gold through exchange traded funds have rocketed. Yet even after this apparent speculative rush, gold ETFs count for just $66bn of total global assets under management of $49,000bn at the end of 2008. All things considered, the investment world remains very cautiously positioned towards gold.

7) The gold price is well supported from a technical point of view

Technicals in precious metals are well worth keeping an eye on. According to Garthwaite’s tech colleague, Chris Hine, gold’s recent break above $1,033 signals a longer-term bullish continuation. He has intermediate targets at $1,100 and $1.192.

8) The valuation of gold stocks still looks attractive

Gold stocks trade at the same relative earnings and price-to-book multiples as in 2003, but the gold price is now more than three times higher. ‘nough said.

So CS says buy gold - but with one big fat caveat: if the world begins to look too normal, sell!

We would choose to be sellers of gold were two-year T-Bill futures to rise above 1.5%. A worry for the gold price would be the appearance of a normal economic recovery: if the recovery looks normal, monetary policy could be tightened, real rates rise, while government default risk remains lows.

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Now for some charts…