Why the Gold Rally Is Far From Over

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By Ivan Martchev, Navellier and Associates, for InvestorPlace

NEW YORK (InvestorPlace) -- For 11 consecutive years investors in gold bullion have seen only gains. Those involved in financial markets know that no winning streak lasts forever, so does it make sense to chase the Midas metal at the present lofty price levels? While anything can happen on a three-to-six month horizon, none of the drivers of the rally in gold bullion have gone away. One could credibly argue that they have gotten stronger.

The total amount of all gold ever mined since the beginning of civilization is 166,600 tonnes ($56.6 million/tonne, or $1,770/oz., would equal $9.4 trillion in total present value). Of that, only 30,808 tonnes is part of gold reserves held by central banks at last count. Since central bank gold buying hit 40-year highs in the fourth quarter, it is difficult to see how the gold price can decline precipitously from here.

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Corrections are possible, if not probable, but central banks are increasing gold buying for very good reasons and are likely to emerge as aggressive buyers on any (large) dips. (Read about how PMI is weighing on gold).

This is because total forex reserves held by central banks have increased to $11.4 trillion -- mostly held in U.S. dollar-denominated debt instruments -- and this constantly growing amount needs diversification in other currencies and assets.

Fewer Alternatives to Diversify

The euro seemed like a good diversification option a couple of years ago, but developments in the eurozone sovereign debt crisis have cast a shadow on the ability of the common currency to survive. Suddenly, the largest single alternative to the dollar no longer seems like a credible option. There are 17 different eurozone countries with 17 different finance ministers but one central bank with a common monetary policy. Fiscal and monetary policies are in outright contradiction in some countries.

The only way the euro survives is via a complete fiscal integration -- difficult to imagine -- which is why even the recent (second!) Greek bailout may not prevent a eurozone breakup, in my view. (Read how an ECB move could kill euro zone stocks)