Gold rally not going away until bailout money disappears

(Fortune) -- Gold has risen 40% since the beginning of 2009, and set new record-breaking highs just this week, rising to $1,250 per ounce. Yet it almost goes without saying that plenty of investors have looked at the rally with just one question: when is it all going to end?

At the beginning of 2010, the word "gold" was rarely uttered too far away from the word "bubble." But the nearly $1 trillion eurozone bailout has created the perfect set of conditions for prices to move even higher over the next few quarters: investors are seeking safety amidst a global move toward currency debasement.

Gold has long been a safe haven when world markets are gripped by fear. Last week's thousand-point drop in the Dow may still be under investigation, and the cause may be technological rather than fiscal, but it remains a grim reminder that markets will likely be volatile going forward.

And for every bit of uncertainty in Europe that has been resolved -- UK elections, the amount of aid to Greece -- there are still questions as to how long it will take for the bailout to work and whether the euro will survive. Some are still arguing that despite the bailout, a Greek default is possible, and even likely, in the long run.

While all markets will move up and down, traders say that gold prices overall will move higher in the next few quarters. "A lot of this buying is by Europeans, and it could take them six months or more to feel comfortable about getting back into euro-based investments," says Adam Klopfenstein, senior market strategist at futures brokerage Lind-Waldock.

Scott Redler, chief strategic officer at trading firm T3 Live, told CNBC Wednesday that gold will hit $1,400, and could even touch $1,500. (Not to say that plenty of economists and traders aren't already predicting gold's fall, though even some of them say a short-term bounce is likely.)

Gold is also attractive during times of currency devaluation. By signing onto a nearly $1 trillion bailout package, the eurozone will be flooded with liquidity by the IMF in order to try and paper over its debt problems. The move echoes the Federal Reserve's decision to turn on the printing presses when our financial system collapsed by injecting over $1.25 trillion dollars in new cash directly into the balance sheets of banks and the government mortgage agencies, Fannie Mae and Freddie Mac.

The European move means that most of the developed economies of the Western world are reliant on free money to survive. That means the dollar's recent move higher against the euro isn't indicative of any fundamental return of strength or investor interest in American currency. Rather, it's relatively strong against the troubled euro.

Relative strength against the euro isn't real strength; at least not in the current economic environment. Europe and the United States will likely be fighting deflation in the near term. (Last month Fortune contributor Daryl Jones of research firm Hedgeye laid out the case for the US being in an inflationary environment.)

All this is pushing investors to seek a true store of value as a hedge in a time of uncertainty, if nothing else. In situations like these, gold has historically been the go-to option. It's become apparent that this time, it's not going to be any different.

Can gold prices fall? Of course they can. Traders believe a combination of market calm, stock rallies, bond market clarity, and most importantly, a lasting fix to the world's mass reliance on free money to keep its economies afloat will send prices tumbling.

While there's plenty of reason to believe that gold's dramatic run can't go on forever, for now, it seems a bad time to bet that the rally will soon come to a screeching halt.