There is a new torrent of warnings of a "gold bubble."

We have been hearing that story from concerned clients, partly in response to George Soros's highly-publicized liquidation of his holdings of the gold ETF: GLD.

Another factor has been the debate about Barrick's move into copper, which is being partially financed by a large bond issue. Despite Peter Munk's passionate and articulate defense of that strategy at Barrick's annual meeting, many observers seem to wonder whether this is a warning sign from the long-standing pre-eminent gold miner that gold's future is problematic.

The financial press has been including many sneering observations that gold is a useless speculation on inflation that is unlikely to occur. Why own an inflation hedge that pays no income?

We dissent from that tiresome scorn: those trained in Keynesian economics about the "barbarous relic" never bother to reflect that Keynes expressed almost childlike faith that central banks, acting pursuant to the Bretton Woods agreement of which he was a major architect, would always exercise restraint in monetary policies that would make gold passé.

The Seventies proved him horribly, hopelessly wrong.

But the Eighties and Nineties made it look as if he would ultimately be proved right.

However, the history of major monetary policies since then—and particularly since 2007—makes the case for gold appears as cogent as it was in the Seventies. This time, there’s no chance the Fed will drive interest rates to double-digit levels to fight inflation and protect the dollar. It may be that, after years of getting by on Financial Heroin, the economy lacks the energy and élan vital to survive even normal interest rates—let alone Volcker rates.

As for the most basic argument—that gold is not an investment, because it pays no income—that seeming tautology is, at root, inherently false.

Gold has always been an alternative currency. It is resuming that role as central banks switch from the sell to the buy side.

A unit of paper currency pays no income.

It can be exchanged for bonds, deposits or stocks that pay income, but a holder of a million euros or dollars in a safe deposit box earns no income on the hoard—just as a holder of a million dollars' worth of gold earns no interest.

The big difference is that the inherent value of the paper euros or dollars will fluctuate in response to the changes in those currencies' values against other forms of paper money, and all currencies must decline in purchasing power inexorably in response to longer-term