The burden of debt is large. While consumers have cut back on spending since the start of the financial crisis, governments have refused to do the same. It’s looking more and more like the government’s only way out of debt is through substantial and sustained money printing. And that’s fueling what UBS has dubbed an “explosive cocktail” for gold prices. Grumblings of a speculative bubble aside, I think we’re a long way from a top in the gold markets. Here are 10 reasons why:

1) Gold prices mirror the expansion of the monetary base. The image to the left shows the startling correlation between the expansion of the monetary base and the rise in the price of gold. Since the supply of gold remains relatively stable, it acts as a barometer for the purchasing power of the dollar. That means a rise in the price of gold isn’t strictly an indication of increased demand, but also an indication that the dollar just can’t buy as much as it did 10 years ago.

2) QE3. After the end of QE2 in June, much of the world’s wondering what the Federal Reserve’s next round of quantitative easing will bring. Chairman Ben Bernanke made sure to point out that he’s got a “range of tools that could be used to provide additional monetary stimulus” after the Jackson Hole symposium closed late last month. More quantitative easing means greater expansion of the monetary base, and that means higher gold prices.

3) Rock-bottom interest rates. The Fed’s also went on the record saying that the Federal Funds rate will be held near zero for at least another two years. By giving banks access to cheap cash, the Fed hopes to encourage lending, but there’s also a nasty side effect: a weak dollar. No one wants to hold the greenback in a low-interest environment. That pushes investors out of CDs and money market accounts and into riskier assets like stocks and inflation hedges like gold.

4) A brand new jobs package. Tax cuts in President Obama’s proposed $447 billion jobs plan have the potential to significantly boost consumer spending (which accounts for two-thirds of the national economy). Obama argues that the plan shouldn’t cost the government any money, but it’s yet to be seen how such a large decrease in Federal tax receipts will be covered. More than likely, the costs will be deferred, which will increase the strain on the Federal budget and dampen the prospects that the country can organically grow its way out of stagnation.

5) Keeping up with inflation. The government currently calculates the inflation rate at 3.6 percent. However, if you calculate that same rate using the methodologies in place in 1980, the inflation rate would actually be closer to 11 percent. Smart money knows that, and they’re moving into gold as a way to hedge against that inflation. So long as inflation remains high, so too will gold prices.

6) We’re not the only ones fighting inflation. As I wrote recently in a post titled “How to invest in the Swiss franc,” inflation has become a global problem. It’s not just the dollar that’s sinking, it’s the euro, the yuan and the pound. When currencies destabilize on a global scale, there is no safe place to stash your wealth outside of hard assets. That’s what makes the current market so worrisome. The run-up in gold prices in the early 1980s was largely a U.S. problem. This time, it’s gone global.

7) A niche market. Gold’s record-breaking string of price increases has garnered a lot of attention in the press. That exposure tends to make people think that everyone and their neighbor has invested in the metal. Eric Sprott of Sprott Asset Management (which happens to manage the Sprott Physical Gold Trust – NYSE:PHYS) argues that there’s a whole lot of investment potential left for the yellow metal. According to his numbers, just .75 percent of all financial assets are currently invested in gold. When a larger chunk of the public starts investing in the metal, prices could spike much higher, much faster.

8) Central banks are still buying precious metals. Last year was the first time in 20 years that central banks around the world became net buyers of gold. That trend is continuing in 2011 despite record prices. Just this week we learned Kazakhstan plans to buy all of that country’s gold production through 2014 (a quantity that could approach 100 tons). Even the Eurozone’s Central Banks are getting in on the action as they became net buyers of gold in June. That’s the first time that’s happened since the inception of the Euro.

9) A recession appears imminent. Evidence that we’re headed toward a recession seems to mount every day. The government reported zero job growth in August, consumer confidence fell to its second-lowest level of the year last week and – most troubling of all – bond prices are edging up as investors grow increasingly risk-adverse. Should the economy take a decided turn toward negative GDP growth, another financial rescue package seems inevitable. More government spending means a much weaker dollar (and much higher gold prices).

10) We haven’t seen a true bubble yet. The gold market has shown signs of overheating in recent weeks. The Comex has raised margin requirements twice and spot prices for the yellow metal have seesawed in high-volume trading. But the overall trend is intact. We’re in the midst of the eleventh year of the bull market in gold. There hasn’t been a blow-off top yet, and – until that happens – count me among the gold bugs.

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