India, the world's largest gold jewelry market, is making a rational and bullish call on gold. The supply of gold continues to decline - the biggest supply is from governments with socialist policies that are selling their gold to pay for social welfare and bailout programs. The IMF is a classic case of this.

What's particularly interesting in this case is that the buyer is a developing economy that's the largest democracy in the world. I see this as another sign of the wealth shift away from the developed markets of North America and Western Europe toward the emerging world.

A decade ago, many of the major emerging markets were in shambles, with contracting economies and huge current account deficits – now many of them have large surpluses to deploy, and they're thinking beyond Treasuries.

Energy analysts at Merrill Lynch came out with a research note predicting the price of gold will top $1,500 an ounce within the next 18 months. The rationale – a lack of confidence in major currencies will push investors toward gold as a hedge against competitive devaluation by the world's largest economies.

The chart below lays out this scenario in a succinct way. Annual gold production is on a downward trend while the growth in money supply in both the United States and the Eurozone is bent almost straight up. Economics 101 - more money competing for a declining resource tends to drive up the price of that resource.

The note goes on to say that if gold prices rise, the price of energy and other commodities will rise as well.  The chart below from Merrill Lynch shows the strong capital inflows into emerging markets starting in the second quarter of 2009 have both strengthened their currencies and boosted commodities demand.

You also see that dynamic at work in the relationship between gold and oil over more than a century. Historically there is a strong positive correlation between gold and oil, and with 2009's global monetary expansion, that correlation is being further strengthened.