Gold Becoming a Hedge Against 'Monetary Uncertainty'

Gold is a different kind of hedge these days. It's closing in on $1,400 an ounce again and setting another new record when priced in euros.

Gold coins and bar
Gazimal | Iconica | Getty Images
Gold coins and bar

The reason? This precious metal isn't serving as a hedge against inflation, as traditionally has been the case. Instead, as investment guru Dennis Gartman points out, investors see gold as "a hedge against monetary uncertainty."

Eurozone debt problems appear likely to widen and intensify. BBH currency strategist Win Thin says, "Troubles in the euro zone periphery have spread to the core," with Belgium and France now coming under pressure.

So, central banks don't know if they can count on the Euro for their reserves, especially since it has fallen below the technically and psychologically significant $1.30 level.

As Gartman writes: "U.S. dollars and dollar-denominated debt might be of interest but in the case of the People's Bank of China, it's dollar-denominated reserves are already problematically high."

He argues the same is true of central banks of India, Indonesia, Malaysia, Saudi Arabia, Emirates, and others. Plus, with incredibly low rates on Treasury debt, reserve banks aren't getting much interest there.

So central banks are turning to gold. And it's a trend that's likely to continue. Bank of America-Merrill Lynch's head of commodity research Francisco Blanch sees emerging market central banks, in particular, as the key drivers of gold buying in the new year.

And, don't forget about the "cheaper" precious metal—silver. It's gains are likely to continue to outpace gold. Silver futures are surging, up over 4 percent today, poised for its fourth monthly gain, having risen over 50 percent just since August! Meanwhile, COMEX gold futures are up about 25 percent so far this year.