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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



) -- 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).

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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


The deliberately and slowly ever-appreciating Chinese yuan will become fully convertible some day and will rival the yen as a reserve currency. Having recently surpassed Japan by GDP size, China now is the world's second largest economy so it is only normal for the yuan to gain international prominence. But it is the Chinese themselves that have the most at stake in the forex reserve diversification conundrum as they hold $3.18 trillion in forex assets, approximately two-thirds of them dollar-denominated.

A Euro Breakup is (Ultimately) Gold Bullish

The worst-case scenario -- which is not what I am looking for -- is a disorderly euro breakup that could result in a sharp, but temporary, dollar spike as it did in 2008. Since the response to the 2008 crisis was more money-printing, the exchange value of the dollar is unlikely to remain high against sounder currencies with higher real interest rates or hard assets like gold. This suggests that any corrections from present levels are likely to be short lived and will ultimately lead to new highs for the price of gold bullion, likely in most major currencies.

If you are looking for exposure to gold bullion do not buy only gold stocks. Such stocks are stakes in operating companies that are very different from hard assets -- physical bullion is a hedge while mining stocks are leveraged investments.

Furthermore, there are a lot of conspiracy theories about the $72 billion worth of gold held in the

SPDR Gold Trust

(GLD) - Get SPDR Gold Shares Report

. Paper claims on gold bullion via swaps, futures and the like are not the same as audited gold bars. While proving conspiracy theories is beyond the scope of this missive, the recent shrinkage to a 2.5% premium of net asset value for the

Sprott Physical Gold Trust

(PHYS) - Get Sprott Physical Gold Trust Units Report

make the shares of the trust so much more attractive.

When originally launched two years ago, PHYS shares for a while traded at over 20% net asset value premium, making them initially unreasonably pricey compared to physical bullion (a major marketing angle is the ability to PHYS shares to be exchanged for the underlying gold bars with a large enough amount). As the GLD and PHYS performance has now largely converged, the current 2.5% net asset value premium is well worth the peace of mind, given that the physical bars are audited on a regular basis in a vault in Canada.

Silver Is Not a Perfect Alternative

While the Sprott organization also launched the

Sprott Physical Silver Trust

(PSLV) - Get Sprott Physical Silver Trust Report

with similar characteristics allowing for the exchange of the shares for physical silver bars with a large enough amount, investors should not treat silver as an alternative to gold. Silver is predominately an industrial metal -- the same way platinum and palladium are -- and it tends to be weaker than gold in times of economic uncertainly. While U.S. economic data is notably improving, in Europe economic statistics have been deteriorating.

It is no wonder than silver topped out in late April 2011, just as the European situation notably got worse and has since not been able to recover all losses. The same goes for platinum and palladium. If you are looking to invest in precious metals as a hedge against central bank extreme monetary policies, stick with gold.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.