Gold made new all-time highs again this week, above $1,120 an ounce. My long-standing "best idea" investment continues to be the best-performing asset in the world.

Yes, stocks have performed well -- very well -- since the bottom in March. Up 64.8% as of the high-water mark for the rally at Thursday's close, if you include dividends.

At the same time, gold is up almost as much from its bottom -- 57.4%, to be exact. But there's a difference. Gold bottomed way before stocks did, exactly a year ago last November. So gold led the way while stocks continued to collapse this spring.

But there's more. At the worst of it last November, gold was only off 29.1% from its previous all-time highs. Stocks, on the other hand, had fallen 55.3%. That's why, even after one of the greatest rallies in the history of the stock market, stocks are still 26.2% off the 2007 top, while gold has moved on to make a record-breaking all-time high.

Get it? Gold went down less. It bottomed earlier. It has rallied almost as much. That makes it way No. 1.

And yet every day I get emails from readers second-guessing my gold call. It seems most investors just don't trust gold. They think it's a "barbaric relic," as John Maynard Keynes called it many decades ago. They think it's only of interest to crazy "gold bugs" spinning their conspiracy theories from the safety of their fall-out shelters. So when the gold price soars, to most investors it's pretty much irrelevant to anything going on in the real world -- so, by construction, it has to be a "bubble."

One reader asked me specifically to respond in this column to two critiques of gold. First, he notes that we can't explain the record gold price as corresponding to an increase in the industrial demand for gold -- that is, its use in jewelry, dentistry, electronics and so on.

That may be true. It's impossible to know. Gold has very few industrial uses compared to other precious metals -- for example, platinum, which is used widely in pollution-control equipment. So you wouldn't think that changes in industrial demand could matter much. On the other hand, fairly small changes in demand can have surprisingly large effects on price. Look what happened to oil last year.

But I'll concede that point, because I don't think it's important. In my view what moves the gold price is inflation expectations. That's because gold is seen as a hard-asset substitute for paper money. When paper money becomes less trustworthy, hard-asset money becomes more valuable. Right now paper money is looking pretty shabby -- look at the fall the U.S. Dollar has taken since March. So it's no surprise to me that gold has done what it has done.

But this brings me to my reader's second critique. He argues that gold isn't really a money substitute as I claim it is. It is not used as money anywhere in the world. And it's been decades since any nation's paper currency has been convertible into gold on demand. In other words, there's no such thing as a "gold standard" anymore. Without such tangible linkages, how can the price of gold be related to perceptions about money?

I have to say I find this critique somewhat dubious. I don't know anyone who doesn't sense that gold held in his own hands is somehow a more tangible, more fundamental, more eternal store of value than a fistful of dollars of equivalent nominal price. See my column from last week about visiting the $300 billion in gold bullion stored in the vaults of the New York Federal Reserve for more on that.

But more substantively, even though no paper currency today is directly convertible into gold, it is nevertheless the case that just about every central bank in the world holds substantial gold reserves. In fact, most of that gold in the New York Fed's vault is held for foreign central banks. Those central banks wouldn't hold gold if they didn't think it represented bedrock credibility -- the underlying strength of their paper currencies backed by a hoard of true value.

You can't explain that away as merely the hangover of central banking practices for the dark ages of the international "gold standard." Central banks of emerging nations only now taking their place as powerhouses in the world economy are busily acquiring gold reserves. Just two weeks ago the central bank of India bought 200 tons of it. Russia and China have made substantial additions to their gold reserves, too, over the last year.

Think about it from their perspective. You want to hold reserves against your currency. For decades the way to do that has been to hold dollars, invested in U.S. Treasurys. So when a central bank like India's decides to buy gold, it is explicitly deciding to sell dollars -- or at least not to buy dollars. So don't tell me that gold isn't a money substitute. For the central banks of India, Russia and China, it self-evidently is exactly that.

Besides, for my theory that gold is a substitute for money to be true, it's not required that everyone think of gold that way. And for those who do, it's not required that the substitution of gold for money take place through official convertibility. All that is required is that enough investors think about substitution to make a difference to the price, and that they be able to carry out that substitution in markets. I have little doubt that those conditions are satisfied.

Frankly, for me, it is patently obvious what's going on here. The Fed has embarked on history's most lax monetary policy, designed specifically to rescue the world economy from a credit crisis that just about created a second Great Depression. That policy is all to the good because it will keep us out of that Depression. But it won't be free. The cost will be inflation. I don't need gold to tell me that. But gold is, indeed, telling us just that.

As long as there are people like my reader who dismiss gold as merely being in a "bubble," I am confident that it will yet make higher highs. One by one, such people will have to be converted to believing that gold is telling them something about our inflationary future, and the inevitable decline of the dollar that will go along with that.

A "bubble"? Not even the price action is telling us that. Sure, gold is at all-time highs. But that doesn't make a "bubble." Remember the crescendo of the great inflation of the 1970s? The price of gold quadrupled in a single year -- 1979. Gold remains my "best idea" for these dangerous times.