Gold is supposed to be a safe haven in a storm, a store of value in a financial crisis. Yet, after several years of strong growth, the Australian-dollar gold price peaked in February and has since been more or less in decline. Gold-related equities have also drifted, at a time when much of the sharemarket has been surging.

It has left some investors confused, wondering whether these trends are early signals of an eventual economic recovery and a hint that it's time to abandon faith in the precious metal.

That could be a mistake. While the short term is as always uncertain, there is one long-term development that, according to market experts, has the potential to send the gold price soaring. That trend can be summed up in one word inflation.

"With trillions of dollars being pumped into the world economy through all these economic stimulus packages and the significant amount of extra money that is actually being printed, one thing most people agree on if they can think past the next investment horizon is we are going to see a dramatic outbreak of inflation as a result," says Gavin Wendt, head of mining and resources research at the Fat Prophets funds management and market information service.

"That is not happening now, because asset values are still falling. But it is going to happen.

"It's a round-about way of me saying the gold price is going to rally, because gold always rallies on inflation expectations. We are very positive ongold."

He says profit-taking has been one factor holding the price back.

"Gold is an asset that has actually out-performed while everything else has been going backwards. So a lot of people have sold a component of their gold portfolio in order to cash up while the rest of their assets are under water."

But he also believes many investors lack a long-term perspective.

"They see an economic catastrophe, so they buy gold. But then the world economy seems to be improving, so they decide they don't need gold any more and they switch to other investments property, or other commodities, or back into the share market."

Colonial First State senior portfolio manager Darko Kuzmanovic says jewellery, which represents about 70 per cent to 80 per cent of the industry's annual sales, has fallen away recently.

"Most of the demand comes from places like India, where gold is often used for applications like dowries or wedding-type jewellery. But because of the economic down-cycle people are not buying as much," he says. "In addition, when the gold price moves up quickly as it has in recent years people tend not to buy it for jewellery, because they worry the price might be about to fall. Once it stabilises the demand comes back."

He says other incentives for the price include a continuing strong surge in demand for gold-related exchange-traded funds and the possibility of heavy buying by the Chinese central bank as it works to diversify its huge reserves away from their dependence on the US dollar.

On the supply side, he notes the gold mining industry is not seeing growth.

"Mature assets are declining and closing. There have been new mines developed around the world but they are not taking their place at a significant rate. The cost of building a new mine is not cheap. So the mine supply is flat to declining, not increasing," he says.

"The big picture is set and I think it is positive for gold. The question now is really all about timing."

A senior portfolio manager with Van Eyk Three Pillars, Otto Rieth, believes the gold price could move a lot higher but he doubts it will occur in the short term.

"Given there is no short-term solution to the current mess, it is fairly prudent to have gold now," he says. "In the portfolios we manage we have probably between 5 and 10 per cent of our holdings in gold-related investments."

He says investors looking to add gold to their portfolios should take into account their tolerance for risk.

Those wishing to buy actual physical gold can purchase gold coins and it is also possible to buy gold in various forms from the Perth Mint.

In addition, a direct exposure to the changing price of the metal comes from ETFS Physical Gold, an exchange-traded commodity (similar to an exchange-traded fund), which is listed on the ASX with the code GOLD.

"If you have got a higher risk profile, then you could look at some gold equities," Rieth says.

"They range from moderate risk, in terms of the large-cap gold companies, which means essentially Newcrest Mining and Lihir Gold, and then you can go right up the risk return curve and have a punt on explorers.

"But those are for people with some knowledge of how to pick such stocks. You need both financial and technical understanding, because it is incredibly risky. For example, a small miner might be sitting on a very good deposit of gold but if it takes them several hundred million dollars to develop it, the banks are not necessarily going to lend them all that money.

"Project finance is now a lot harder to obtain. And you have to be nimble as well. These are not really buy-and-hold stocks. You need to trade around a core position," Rieth says.

In addition to Newcrest and Lihir, Fat Prophets' Wendt recommends two smaller producers Sino Gold Mining, which has begun operations in China, and Avoca Resources, which operates a mine in Western Australia.

Among explorers he likes Andean Resources, which is focused on a large project in Argentina.