Chart created using Omega TradeStation 2000i. Chart data supplied by Dial Data.

Here are monthly charts of gold denominated in Euros and in US dollars. Naturally they are similar. Both show that gold remains in a long-term bull uptrend.

Since the uptrend got under way in 2001 there have been three phases. The first phase lasted until 2005 and is depicted by the gentle rising trendline that is at bottom. The second phase then formed and lasted until the financial crash of 2008. The trendline here is steeper than the one created by joining the bottoms up until 2005. The third phase is steeper still and is currently being tested in both currencies. Gold in US$ is also currently testing the 18-month moving average, which is an important level of MA support for long-term charts. Gold in Euros remains just above its 18-month MA.

Throughout the bull market the US$ price of gold has only occasionally broken under the 18-month MA. For gold in Euros it has happened somewhat more frequently, especially in the first few years.

The most noticeable such divergence was during the financial crisis of 2008. While gold priced in Euros made only a shallow dip under the 18-month MA, gold in US$ plunged below it and stayed there for a few months. Gold in Euros displayed more relative strength to gold in US$ throughout the financial crisis.

Whenever a crisis arrives the rush appears to be into US$ but once the crisis abates or lessens the euro tends to strengthen. But will that trend continue? Somehow there is a belief that if there is a financial crisis one should buy US$ and US Treasuries and dump gold, with gold being viewed as the more risky asset. Of course that doesn't make any sense but it is what is happening. The same thing appears to be happening again as the current financial crisis hits Europe this time.

However, not everyone thinks that way. What is getting sold during the crisis is paper gold (futures and other derivatives) and not physical gold. Because the paper gold market is so much larger than the physical market, it tends to overrun the physical market. But even as it has been doing so, there has been strong evidence that physical gold is being purchased. According to SEC filings George Soros has significantly increased his shares in the SPDR Gold Trust (GLD-NYSE), quadrupling his holdings in the first quarter of 2012.

John Paulson has also bought more GLD and remains the largest holder. Others that have increased their holdings include PIMCO, the world's largest bond fund, and the Teacher Retirement System of Texas. There was an announcement out of Japan that for the first time a large pension fund has allocated roughly 1.5% of its funds to gold. The reason given was for some protection against sovereign risk.

Central banks have also been buying. 2011 was the first year in almost two decades that central banks became net buyers of gold, purchasing some 440 tonnes. According to figures from the World Gold Council (WGC) this has continued into 2012. First quarter numbers showed central bank net purchases of a further 94 tonnes. Evidence suggests that this has continued in April and May. The largest buyers in the first quarter were the central banks of Mexico, the Philippines, Russia and Turkey.

For years, central banks were net sellers of gold. Every year the worldwide demand for gold outstripped mine supply, with the difference normally being made up through the sale of scrap and central bank selling. Central banks' becoming net buyers has removed an important source of supply.

Investment demand (gold bars, coins, ETFs and similar products) remains strong, jumping by 13% in the first quarter of 2012 over the first quarter of 2011, again according to the WGC. Demand increases came from China and the ETFs. China alone accounted for a record 98.6 tonnes in the first quarter of 2012, also a 13% jump over the first quarter of 2011.

There is no doubt that the current situation in Europe is destabilizing. The Greek situation is chaotic and the idea of Greece pulling out of the Euro is gaining some credence. There is now a definite risk of a default from Greece. If that happens, will the contagion spread to Portugal and Ireland and even to Spain and Italy?

Against this background, the union of Germany and France has become frayed with the election this month of Francois Hollande as president of France. Austerity was forced upon Greece by these two, particularly Germany. But Hollande is looking for ways to generate growth as it has become increasingly clear that austerity measures are not working. Hints are now being heard that there indeed might be more investment, slower fiscal austerity and looser monetary policy to promote growth. Even the Fed has seemed to hint at that once again. A hint of loose monetary policy and possibly more quantitative easing (QE) is music to gold's ears (and to the stock market as well).

Falling stock markets, particularly in the US, always seem to bring out hints of QE these days. If there is one thing that the politicians (and the monetary authorities as well) hate more than gold rising, it is the stock markets falling. The tendency is for there to be a rising stock market going into an election.

Whether Greece will exit the euro is anybody's guess at this stage. Greece is probably better off in the Euro but the point is moot when your economy is contracting at the rate that theirs is. Fear of a collapse has led to a run on Greek banks, and some of that withdrawn money might well be converted to gold. Europeans have seen this picture before - of collapsing fiat currencies - and only holding gold for preservation of capital can save them.

Gold remains in a long-term uptrend although that uptrend is being tested at current levels. The chart does not show that gold is in a bubble, as some love to claim. If there is a bubble it is in debt and derivatives and the still over-leveraged banking sector.

Gold is a small market. At current prices all the gold in the world is worth only about $7.5 trillion, compared to $200 trillion of stocks and bonds worldwide and a $700 trillion plus global derivatives market. To put things further in perspective, the Facebook IPO is estimated to be over $100 billion. The world's largest gold company, Barrick Gold (ABX-TSX), has a market cap of around $37 billion. One of them produces nothing.