— "The Financial World According to Inya" Column, by Inya Ivkovic, MA

Back in January 1980, when gold hit the $850.00-an-ounce mark, people started lining up outside currency and precious metals dealers, trying to get their share of the pie. Eventually, and sooner than anyone in those crowds expected or wanted, the bullion market crashed, leading to two decades of gold price stagnation. Today, as the gold price has hit the $1,200-an-ounce price mark recently, currency and commodity dealers claim that traffic outside their shops is intensifying. Will gold crash again or will it endure this time around?

We believe it will, and here is why. In the late 1970s, the double-digit inflation petrified investors into a gold stampede. Today, the impetus driving the gold bull is deeper and broader and it has just started gaining traction.

Central banks have taken the road of aggressive money creation either by keeping interest rates at ultra-low levels or by plunging their budgets and accounts into massive deficits. But even if there were no need for concerted global efforts to jump-start the global economy and no need to flood the financial systems with paper money, one can only imagine the true size of the paper money and financial assets that have been in circulation worldwide since the 1970s. That mountain of paper assets alone has the potential to create an offsetting and massive demand for gold, particularly considering that the supply of physical gold is historically on the decline. Having that in mind, even at a price of $1,200 an ounce, gold is still cheap.

So, how come the majority of investors still seem not to realize this and still ridicule the gold bugs? This is where behavioral finance comes in handy. When an economic crisis hits, people's first instinct is to amass cash and other paper assets, because it is the immediate medium of exchange for goods and services and it gives them comfort when stock and other markets yo-yo from one day to another.

Those would be the same people in need of a history lesson, such as an example of the hyperinflation in Germany in the early 1920s. When the crisis came, Germans hoarded cash and hoped having paper money would safe-keep their possessions and outlook on life. However, when paper money awfully quickly became worthless, those who did not invest their money in gold or strong foreign currencies were wiped out.

I have talked previously about the gold price outlook and I remain confident that gold will hit the $1,500 mark within the next 12 months or less. For investors debating the question about what makes a better investment — bullion or gold stocks — it appears that there is more leverage, and thus price appreciation, in gold stocks. But my inner "diversifier" believes in combining both in your portfolio: physical metal as a concrete hedge against inflation and gold stocks as a way to fluff portfolio returns.