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London. Gold’s nearly vertical rise to new records is puzzling many investors who are trying to square arguments fueling its rise with seemingly conflicting moves in risky assets like equities or inflation-protected securities.

This is not the stuff of a traditional gold rally, some argue, and suggests momentum alone rather than any watertight rationale is driving gold’s recent surge.

The most common answer to why gold has been rising has been that the dollar has been weakening, making the metal, which is sold in dollars, cheaper in other currencies and acting as a hedge for dollar investors.

But the strong inverse correlation between the two is fairly recent. As little as six months ago it was not there and there have been periods recently when the two failed to march in lockstep at all.

So there must be something else at work as well, given that spot gold hit another record high, above $1,226 an ounce, this week. That was not really a record high, of course. On an inflation-adjusted basis, it would need to get up to more than $2,150 to match where it was at the London fixing on January 21, 1980.

Michael Dicks, head of research and investment strategy at Barclays Wealth, reckons a lot of the demand for gold is down to confidence, to investors wanting something they can grasp onto in an era of uncertainty about the global economy. “People feel more confident in tangible investments,” he said.

But why now? Gold was discarded along with just about everything else except cash in 2008 when the world was fearful of a financial meltdown. It lost nearly 6 percent in the quarter that Lehman Brothers went bust.

In the past, gold has been widely used to combat inflation, so its current rise could be an argument for the devaluation of currencies as a result of authorities essentially printing money to pump liquidity into the system.

There is little sign of any immediate inflation, however.

There may be longer-term fears of inflation at work, but this has not been recorded as strongly in other hedging instruments.

Many point out that if you are looking for an inflation problem, it probably is not lurking in the big Western economies but fin the fast-growing emerging world.

Baseline forecasts by the International Monetary Fund have developed country inflation at large this year at a virtually non-existent 0.1 percent — yet it sees 5.5 percent inflation in the developing world.

King’s Investec, meanwhile, puts the most recent rally down to the reversal of a decades-long selling of gold by developed economy central banks to net buying by emerging market authorities.

That is based at least in part of a desire to diversify away from the dollar and it is enough, according to Investec, to put a new floor on gold at around the $1,000 an ounce mark.

All the reasons for gold’s rise are perfectly satisfactory but the fact that there are so many could suggest that at current prices all that is happening is momentum — buy it because it has been going up and others are doing so.

Bubble, anyone?

Reuters