It wasn’t so long ago when the Euro was flying high and some experts were predicting that the dollar could be replaced as the world’s reserve currency because of the United States’ ballooning deficit. Now, there are fears that Greece could default on its debt and even the Euro may cease to exist. The dollar has made gains against the Euro, but the real winner in this debt crisis can’t be printed by central banks. It must be harvested by miners: gold.

While the Euro has taken a hit, gold has shot up to all-time highs, above $1,200 per ounce. Investors must decide for themselves whether or not commodities like gold belong in their portfolio, but for those who want to know what all the fuss is about, here are a few things to know:

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It has never been easier to invest in gold. Exchange-traded funds have revolutionized investors’ access to commodities. “The ease and liquidity of ETFs have really opened up commodities in general as a new asset class for investors,” says Tom Lydon, editor of ETFTrends.com. “In the past, for investors to buy gold, they either have to buy the coins or the bullion, and now in the form of ETFs there’s a whole variety of options,” Lydon says. In addition to buying gold through futures contracts, investing in physical gold—bars in underground vaults—through ETFs is now possible.

[See The Appeal of Gold ETFs.]

Gold can diversify. A small amount of gold can limit the overall volatility of your portfolio because it often performs differently from mainstay investments like stocks and bonds. “Gold and some other types of commodities are what you call non-correlating assets, so they tend to move independently of overall moves in the market,” says John Diehl, senior vice president in the retirement division at the Hartford. Gold sometimes reacts differently to market selloffs, which can help offset losses in stocks.

Gold as a reserve currency. The past few weeks have been a roller coaster ride for stock investors, punctuated by steep falloffs and strong rallies. The market’s behavior is partly due to worries that debt problems in some European countries like Greece could spread to other parts of the European Union and damage the Euro. The dollar has rallied somewhat in responses, but the United States has debt problems of its own.

The world’s primary reserve currency—the most commonly held currency by central banks around the world—is still the dollar, but when fear strikes the market, many investors flock to the safety of gold. “It’s not irrational that people are buying more gold right now because in the past, you had two reserve currencies, potentially, then you were down to one with the Euro, and now you may be down to none for a while, so gold is really the ultimate reserve currency,” says Paul Zemsky, head of asset allocation for ING Investment Management. “It’s the only thing that holds its value even if central bankers and governments are eroding the value of their own currency.” When there are global concerns about monetary policy, Zemsky says, gold will benefit from a flight to quality.

It has been a good, long run. The shiny metal set record highs last week. Diehl says he is worried that some investors who are new to commodities may not know what they’re getting into. “If fear in the market is at a high and everyone you talk to is saying, ‘Hey, you should put your money in gold,’ as a contrarian investor, that should be somewhat of an alarm to say, ‘Is this really the right thing to do? When everybody says, ‘Now is the right time to buy anything,’ you can generally feel fairly confident that it probably isn’t,” he says. A general rule of investing, Diehl says, is to look for asset classes that seem to be undervalued, and gold could be reaching its peak price.

Gold can be extremely volatile. Gold can provide diversification, but investors should be aware of the risks of investing in commodities. “Gold is really a precautionary hedge and not something your whole portfolio should be in,” Zemsky says. He recommends that investors only have 3 to 5 percent of their overall portfolio in gold. Diehl is even more cautious. “A singular bet on gold is, at its core, still a singular bet,” he says. “Just as emotions are volatile, the price of gold is a pretty volatile asset.” He suggests finding a fund that invests in a broad basket of commodities and not just in gold alone. Two popular choices are PIMCO Commodity Real Return Strategy Fund (PCRAX) and PowerShares DB Commodity Index Tracking Fund (DBC).

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As I write this mid-day on Monday, gold has addded more than five percent to recover from of its intraday lows 10 days ago. It is about $1,100 at the moment.

It looks like the $1,108 level is one that would signal to technical traders to again jump in to buy. If gold can get and hold that level, and there is a good possibility it will occur this week, then it’s highly likely that gold will generally rise in the short term to pass the early December 2009 all-time high of about $1,212. It won’t go in a straight line, but it could rise so quickly that it will amaze people.

Once gold reaches a new record high, the odds are that it would pause for some profit-taking before again rising up to even higher levels.

There continues to be so much demand for physical gold (versus paper gold contracts) relative to the available supply, that many would-be buyers seeking immediate delivery in the London market are having their orders rejected by every trading house on that exchange.

London is the world’s largest gold trading center, so larger buyers frequently try to place their orders there. The London Bullion Market Exchange trades contracts for physical delivery of gold. In theory, the trading houses on the exchange have the physical gold to deliver on maturing contracts. It does not make sense for these firms to reject orders on which they would make a profit. With multiple reports of great difficulty experienced by buyers seeking delivery of London contracts, a great suspicion is raised that the physical gold may not all be there.

I would not be surprised if, within a month, a two-tier market develops between the physical and the paper gold spot prices. If this happens, the price for physical is almost certain to be significantly higher. The lower price for paper gold contracts reflects the risk that the seller of the contracts would default. Obviously, a buyer who takes custody of physical gold has no risk of seller default.

The recent major snowstorms in the eastern part of the United States have disrupted U.S. Mint production and delivery of gold and silver American Eagles. The U.S. Mint headquarters in Washington, D.C., was closed Feb. 8-11. Both the Philadelphia and West Point, N.Y., mints, the manufacturers of most Eagle products, closed on Feb. 10. The receipt of planchets to make the coins, the production of the coins, and the shipment of finished product were all interrupted. This has made existing supply shortages even more of a problem.

Even better than the positive outlook for gold, silver seems hugely undervalued at today’s levels. Silver fell more than 20 percent from its early December peak, with the result that the gold/silver ratio is now above 70. The long-term forecasts I have seen for this ratio range from about 10 to 50, so all of the analysts behind these projections like silver’s prospects better than gold.

My own long-term expectation is for a gold/silver ratio of about 35 to 40. If our analyses are correct, silver’s price should appreciate far more than that of gold.

It should be no surprise that most of the action in physical metals in the past two weeks has been in the silver market. It is almost unanimously one-way traffic, with buyers eager to buy but almost no liquidation by owners. As a result, premiums are rising and delivery times are stretching out into the future, with some products already having expected delivery of more than one month. Supplies are not yet as tight as they were in late 2008, but they are going in that direction.

Physical gold products are relatively available, though U.S. Buffaloes are up in premium and not that easy to find. Once the price of gold starts to rise to new heights, I anticipate that supplies will dry up, just as we are now experiencing with silver. Between now and the end of March, the precious metals markets could get very exciting.

Patrick A. Heller owns Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” the company’s monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Financial Sense University (www.financialsense.com). His periodic radio interviews on WILS-1320 AM can be heard at http://www.amlansing.com and on the Korelin Economic Report at http://www.kereport.com.