Compared with stocks and other financial assets, gold looks inexpensive. More important, inflation is starting to pick up in the U.S. and in much of the world as central banks shrink their enormous balance sheets. And gold has represented a good defense against inflation eroding the value of a stock or bond portfolio. Over time, it has held its value against the dollar. Gold was $20.67 an ounce 100 years ago and that bought a good men’s suit. At $1,200 an ounce, the same is true today.

“Gold is rare, and it’s hard to rapidly increase the supply of it,” says Keith Trauner, co-portfolio manager of the GoodHaven (ticker: GOODX) mutual fund, which holds Barrick Gold(ABX), a leading mining company. “People have historically viewed it as a hedge against government depreciation of local currency.”

There are an estimated six billion ounces of gold in the world, worth more than $7 trillion, about 30% of the value of the S&P 500. Annual new mined supply adds less than 2% to the global total.

“Virtually every government in the world is trying to promote inflation partly because there is so much sovereign debt,” Trauner says. When there is so much debt, he contends, governments have three choices: default, restructure, or inflate the currency. “Politicians, when given the chance, will choose the latter.”

Naysayers point to higher interest rates as a negative for gold because it increases the allure of holding cash. But gold had one of its best decades during the inflationary 1970s, when rates soared.

Eoin Treacy's view

Whereto for precious metals? A big decline has taken gold back to the $1200 level from its January peak of $1366 and sentiment is torn between those hungry for bargains and those worried about the trajectory of interest rates and the strength of the Dollar.

Gold is the most liquid of the precious metals while silver and platinum are considerably smaller. Therefore, they often tend to lead because less money is required to evince a significant move than for gold.

Platinum has staged its largest rally this year since hitting new lows in August and has broken its downtrend in the process. The biggest test of a return to demand dominance will be in whether it can hold the majority of this rally by posting a higher reaction low.

Silver rallied today to testing the lower side of the most recent overhead trading range but needs to sustain a move above $14.75 to break the consistency of the downtrend.

Gold has been hovering near $1200 for a month. Ranges are explosions waiting to happen so when a breakout occurs it is likely to be surprising for traders who have been lulled into thinking the low volatility of that 30 days will persist.

Palladium is the clear leader in the precious metals sector and rallied this week to sustain a move above $1000 and to break its downtrend.

The VanEck Vectors Golds Miner ETF broke downwards from an 18-month range in August and the pace of the decline has moderated over the last month. However, it will need to sustain a move above $20 to confirm a low of more than short-term significance.