NEW YORK (TheStreet) -- Financial media and market observers have been straining to explain market movements over the past few weeks. If retrospective analysis is hard, prediction is impossible. This week promises to be even more volatile and exciting, with Fed Chairman Ben Bernanke's Jackson Hole speech and eurozone leaders coming back from their vacation from austerity and all earthly concerns.But long gold, via the SPDR Gold ETF ( GLD) seems a likely winner for the short term (days to weeks) amid the chaos. Before going to my arguments, I'd like to clarify a fundamental aspect that often seems detrimental to insightful analyses of gold: of the two hedging utilities of gold, inflation risk and general currency risk, the stellar rise of gold since 2001 is primarily driven by the latter. Reality is inflation hasn't been a worldwide problem; rather, deflation has been a constant threat since the '08 crisis. On the other hand, 9/11 marked a fundamental shift in the market psyche: whereas the U.S. dollar, via the PowerShares DB US Dollar Bull ETF ( UUP), had been the unquestioned foundation of worldwide commerce, 9/11 demonstrated its potential vulnerability, no matter how remote, for the first time. In retrospect, that was the biggest regime shift in worldwide commerce since Bretton Woods. If the Nixon Shock was merely formalization of the inevitable reality, the '08 crisis was merely continuation of the tectonic shift away from the dollar. This theory has the neat side effect of explaining gold's retraction since the summer of 2011, which coincided with the onset of full-scale euro crisis, marked by the emergence of Spain and Italy as source of trouble. The euro crisis reversed the U.S. dollar's shift away from the central role, although this reaffirmation is accepted reluctantly by many in the world. By the same token, unless and until either the euro crisis is resolved or inflation becomes a real problem in the U.S., gold is likely to continue its retraction. But the hope for some form of meaningful measure to ease the euro crisis has been very strong this time, probably stronger than when Long Term Refinancing Operation was introduced. If, as hoped for, the European Central Bank sets a limit on eurozone sovereign bond yields and backs it with "unlimited," whatever that means, peripheral sovereign bond purchase, and/or a eurozone banking supervisory entity is formed, confidence in euro's viability would increase materially and sustain for awhile.
I continue to doubt euro's viability; however, it would not be wise to go against market trends unless one can confidently predict the time and scale of adverse movement, which I cannot. As euro's perceived viability increases, gold will go higher at least in USD terms. Again, this is not due to increase in inflation risk; it'd be silly to talk about inflation in eurozone for a long while. Furthermore, for reasons beyond me, the expectation of QE3 from the Fed has been stubbornly persistent. But even if you don't believe QE3 is on the horizon, it'd be suicidal to expect Bernanke to say anything hawkish at Jackson Hole. I wonder how long the market will feign enthusiasm on Fed's dovish lip service. But it's irrational to trade on the basis of such skeptism unless you have a huge position to open/move. Unlike the developed world, where everyone is going through Japan's lost decades, the BRIC countries (Brazil, Russia, India and China) have some real inflation risk to worry about, especially if they cannot resist the natural urge to print. The bullish marginal effect on gold may be significant as institutions with exposure to these markets and the newly minted rich seek protection. In addition, reports of recent purchases of gold by George Soros and John Paulson don't hurt. And then there's a weird bit that the Republican party is considering endorsing the return to gold standard as part of the official platform, as reported by FT ( by way of CNBC). I highly doubt the world is ready for the return to gold standard just yet. But such a rumor at a critical juncture of the presidential campaign likely has some reason; perhaps Romney's campaign strategists saw enough popular sentiment support to float the idea. As I hope I have shown clearly, however, I am a cynical bull in gold at this point. I would watch closely for any invalidation of my arguments above and be ready to abandon ship. At the time of publication, the author was long gold. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.