Gold and silver have fallen in Asian and early European trading, despite global uncertainty leading to weakness in equity and bond markets. Support is likely to come from eurozone debt concerns, geopolitical risk and the deepening nuclear crisis in Japan - the true extent of which remains unacknowledged. We are seeing yet another period of consolidation with gold trading between $1,300/oz and $1,450/oz since October 2010. While further short term weakness cannot be ruled out, the fundamentals would suggest that after the six-month consolidation, gold could soon take out $1450/oz, and $1500/oz remains a viable near-term target. Contrary to popular perception, speculative sentiment remains low with little or no media coverage of gold's record highs, and what coverage there is often negative. Consequently, there is very little public participation or "panic buying" of bullion. The majority of the western public do not know the price of an ounce of gold in dollars, let alone in local currency-terms, which is more important for them. The lack of speculative fervor is clearly seen in data for the ETF gold holdings (see chart above) and Commitment of Traders (COT) data. Total gold ETF holdings fell in Q1 and are lower than the records seen in December 2010 and at levels seen last June - 9 months ago. This is not indicative of an investment mania. Real physical demand is driving price rises as is seen in the accepted figures from the World Gold Council and others. Yet, gold ownership remains very small among the investment public in the western world with many estimating that gold accounts for less than 1% of global equity and bond allocations. Physical demand remains robust, particularly from China and the rest of Asia. This is seen in the healthy premiums for gold bars seen in Asia. Indian demand has lulled somewhat but remains at elevated levels. Gold turnover on the Shanghai Gold Exchange for March to date is 28% higher than February 2011 and indeed 3% higher than March 2010, according to UBS. Further confirmation that Chinese demand continues to be very robust. Record nominal prices are not deterring the Chinese public concerned about surging inflation, partly due to their experience with hyperinflation. Despite bullish conditions, investors should avoid leverage and taking speculative punts on any one asset class including gold and silver. Attempting to 'time markets' remains the preserve of speculators. Diversification, including allocations to gold and silver bullion, has never been more important. Real diversification with healthy allocation to gold and silver bullion will be essential to protecting, preserving and growing wealth in the coming years.

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