Major investment banks have turned negative on the commodity as it continues to prove itself a ‘Marmite’ investment, one investors seem to either love or hate.

Nevertheless, at times like these it is crucial to sift through the noise, identify misunderstandings and maintain a level longer-term outlook.

With this in mind, certain risks have been overstated, while gold’s short-term direction remains as unclear with multiple moving parts determining its price. Given the choice between gold equities or physical exposure, the former is preferable on yield and margin protection.

Traders are creating short-term noise while governments are looking long-term strategically. The biggest misunderstanding currently by investors is that European Central Bank (ECB) selling is significant and could provide downside risk to the gold price.

Firstly, the country at the centre of these claims is Cyprus, which holds a minimal amount of the world’s gold reserves. Secondly, the ECB is limited by an accord to only sell 400 tonnes each year. Finally, with the current uncertainties, banks are more likely to keep their gold as collateral.

Following on from this point, while the economic environment remains shaky, the ‘era of easing’ is likely to continue for the medium term.

Leading to inevitable currency devaluation, countries will again be looking to the commodity to protect value. Emerging markets in particular need to diversify their foreign reserves, in some cases holding single-digit percentages in gold versus roughly three-quarters for the US. Sri Lanka, most interestingly, came out seeing a buying opportunity at these price levels.

Nevertheless, if given the choice between maintaining exposure via gold equities or physical, the former is the choice de jour. With the increased access offered by tracker funds, the rise of the retail investor in the market means volatility is likely to remain high. In fact, if the largest physical gold tracker were a country, it would be the sixth largest holder of gold in the world.

Furthermore, as capital controls ease, emerging market investors may move into more productive assets instead. Crucially, in a yield-starved environment, the dividends offered by equities are attractive. In terms of gold miners, while their budgets account for further price falls, they have been focused on making substantial cuts to capital expenditure. This enables them to protect margins regardless of the gold price.

It is often more useful to be a psychologist rather than an investor when deciphering the driving forces behind the gold price. Opportunities remain but multiple turning cogs must be assessed.

Gemma Godfrey is head of investment strategy at Brooks Macdonald