With high rupee prices muting jewellery demand from the world’s biggest buyer so far this year, investment demand has stepped to the front of the stage but, increasingly, there are two types of investor fighting for the spotlight.

In a piece yesterday, I quoted UBS saying, “There are two stories at play here – a short-term case of frustrated investors, disappointed that gold hasn’t rewarded them with a +$1800 price tag, but against this is another player, with a more strategic view who is either 1) not willing to sell into current weakness and/or 2) using the pullback to add to length.”

Speaking on Mineweb‘s Gold Weekly podcast this week, CPM Group MD, Jeff Christian, agrees with this sentiment, explaining, “You‘ve got two groups of investors to pay attention to. The first one is the gold believers – these guys continue to believe that monetary accommodation necessarily leads to inflation or hyperinflation and therefore must lead to higher gold prices and neither of those assumptions are statistically supported…. So you’ve got this coterie of gold believers who buy gold when monetary accommodation is announced but you have a much bigger investment market which are not the gold believers who get very concerned when the economy is sucking wind and the Fed is doing nothing. So if you go back and you look at the gold price since 2008, it’s actually risen more sharply when the Federal Reserve’s not providing monetary stimulus than it has when it is.”

He adds, “Gold prices have been rising really sharply since August. If you go back to late July gold was $1580 and from late July until recently, it rose up into the $1750 – $1800 range and that was based on a variety of anxieties that investors had like the fiscal cliff in the US, sovereign debt in Europe, Chinese economic slowdown, the potential for political military problems affecting oil supplies in the Middle East and I think what you are seeing is a reduction of those investor concerns which is being reflected in investors taking some of the profits out of their gold positions and looking more to reposition themselves for slower economic growth.”

A similar view underlies a note out today from Investec Securities, which is recommending that clients take some profits after a strong little run since June, particularly in the gold equities.

“We believe that the macroeconomic environment remains supportive of gold and we remain positive on gold in the medium term. In the short term, however, we have passed through what is historically the strongest period of gold price appreciation. Having benefited from the recent share price increases we recommend that investors take profits at current levels, on the basis of buying in again at lower levels,” the bank writes.

Adding, “We recently increased our forward gold price assumptions as part of our quarterly commodity price review. However, we note that the lift in our pricing assumptions does not reflect forward pricing that is aggressively above the spot price (currently c.US$1,750/oz), but rather a delay in the rate at which our gold price assumptions recede to the long-term price.

While consensus seems to be that gold prices are likely to remain elevated over the medium term and into 2013, there is no doubt that gold has been moving down in the short term and there are a number of people that there are some that feel the move lower should actually have been sharper.

In its Precious Metals Daily note today, UBS’s Edel Tully says the moves down of late have been “without drama” indeed, she says, “The laboured move lower in gold is baffling many. From conversations with clients in recent days, nearly all expected a move lower and nearly all thought the move would be more painful than we’ve seen so far. Is it just a matter of time? Perhaps. Gold is reacting to the mood that prevails across other markets with equities lower, Q3 earnings softer and the EURUSD weaker.”

But, as she points out, while some are holding out for a dramatic move lower, many seem to be overlooking the fact that the metal has already given back nearly $90 from its October high.

Tully goes on to say it is important not to underestimate the “deeper and broader held view that the current macro backdrop is gold positive”.

As she points out, the consensus seems to be that gold will be trading higher before year-end and into Q1 2013 but, to get these buyers off the sidelines and back into the market is a difficult thing to do when prices are still falling.

“To get these buyers on the sidelines to pull the trigger, a more meaningful pullback is probably needed. So it’s a bit of a catch-22 situation. Either way, gold feels like its set for a big move. And sentiment right now suggests that move is lower. But given how hard the metal is trying to hang on to price levels above $1700, perhaps the big move the market is waiting for is actually north? Will this be gold’s trick or treat moment?”.