All eyes are on Davos this week, and it would seem the political elite have the knives out for bitcoin.

UK Prime Minister Theresa May and Chancellor of the Exchequer Philip Hammond suggested that the currency's links to criminal networks need serious scrutiny, with the Prime Minister saying that the UK will look "very seriously" at Bitcoin.

Meanwhile, investors and those keenly watching from the sidelines are likely to see further price fluctuations in the cryptocurrency, which rose 1,300 per cent in 2017. Bitcoin's wild ride has been the talk of the town. But for those of us who like a somewhat harder asset, the traditional safe haven of gold still has much allure.

As assets, gold and gold-mining equities were very competitive in 2017.

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While hardly in the same league as Bitcoin, investors enjoyed a bumper year, with the precious metal enjoying its best annual run since 2010, ending the year up more than 13 per cent.

Reflecting this recovery, gold equities, as measured by the S&P Commodity Producers Gold Index, gained almost 11per cent. All of this despite some poor individual corporate performances in the mining sector, with a backdrop of rampant gains for large caps in general and not to mention the market's sudden, highly risky love affair with cryptocurrencies in recent months.

The gold price remains within touching distance of £1,000/oz ($1925). The metal broke through this historic benchmark for two months last spring and one month in late summer. So is the yellow metal poised to "do a bitcoin" in 2018?

On an inflation-adjusted basis, gold has only properly broken the £1,000/oz barrier on three previous occasions - five years ago, the early Eighties, and at the end of the 15th century.

Long-term price comparisons are always problematic but, for the UK, persuasive inflation measurements go back to 1270. According to the Bank of England, depreciation in the value of the UK currency during the 14th and 15th centuries caused an enormous increase in the sterling price of gold.

Gold, in current money, peaked at £1,100/oz in 1500, which was only eight years after Christopher Columbus discovered the Americas, and 11 years after the Royal Mint issued the first Sovereign, valuing an ounce of gold at a then £2.

Further price fluctuations are likely in bitcoin, which rose 1,300 per cent last year. Picture / Getty Images
Further price fluctuations are likely in bitcoin, which rose 1,300 per cent last year. Picture / Getty Images

The real sterling price of gold didn't threaten four figures again for almost 500 years. Indeed, the price collapsed during the 16th century as gold flooded into Europe from Spanish conquests in Central and South America.

Unlike other mined commodities, the price of gold is not affected by the amount extracted as there are huge existing above-ground supplies relative to annual demand.

The metal is rarely mislaid, and it is not utterly consumed in the same way as coal, for example. It is estimated that some 200,000 tonnes, or 6,400 Moz, have been mined throughout history, of which only 6 per cent is unaccounted for, with 48 per cent of the identified holdings being in jewellery. Accordingly, at a current mining rate of 3,000 tonnes per year, 96 Moz, we are adding to this available stockpile at an annual rate of only 1.5 per cent.

Far more important determinants of the price of gold are interest rates and political risk.

The former affects the effective cost of holding gold as the metal pays no dividends, while the latter drives investor interest when the value of equities and bonds becomes uncertain. At the national level, the local currency's exchange rate with the US dollar is the determining factor.

Whilst any variation in the gold price is important to investors, it is absolutely crucial to the international mining industry. Mined gold last year was worth some $120 billion ($163b) to the industry, making it the fourth most valuable mined commodity in 2017 after coal, iron ore and copper.

Indeed, in terms of global exploration drilling, and the number of mergers and acquisitions, the precious metal is far and away the most important mined commodity, accounting for about half of all global activity.

In contrast, bitcoins are not, of course, a tangible asset, and the virtual currency is not of value to anyone outside its current investors. Unlike gold, bitcoins as they are now seem an unlikely store of wealth. The volatility in prices alone would frighten the wariest safe-haven investor, as would the threat of increased regulation as politicians line up to flex their muscle. Neither can one simply wear them to demonstrate wealth.

Although gold has had an encouraging start to 2018, no one is able to predict with certainty which way the price is going to go this year.

Things that will most likely impact the international US dollar price of gold include global interest rates, sudden changes in perceived investment risk, and political uncertainty.

For UK investors, the value of sterling against the US dollar is an additional factor, and this will be impacted especially by Brexit negotiations and local interest rates.

Sterling's recent climb against the greenback, again partly driven by comments at Davos, will make gold that little bit more expensive at home. But demand for the metal, and also for shares in gold-producing companies, will continue to come from investors that fear the worst from our leaders.

One thing is certain: it may lack the fireworks of bitcoin, but gold should also avoid the worst of its volatility. And it will remain one of the most important commodities to the mining industry. For investors, whether measuring gold's price in terms of sterling or US dollars, the metal will go up and down, but not necessarily in that order.