As the prospects for higher inflation and higher prices increase with the billions of U.S. dollars created out of thin air being pushed into the financial system in various government bailout and stimulus programs, one might expect that a traditional inflation favorite like gold would benefit.

Indeed, gold prices have gone up – 5% or 10%, depending on the day – but gold has not been able to exceed 2009 price highs like oil or soybeans or even some stock indexes. We hear anecdotal evidence of strong demand as coins and other physical forms of gold/silver-related investments are back-ordered or carry high premiums.

But instead of putting money into physical gold or gold stocks, many inflation-wary investors have put astronomical amounts of money into gold and silver exchange-traded funds (ETFs). Suddenly, the “supply” of gold has gotten much larger. The World Gold Council estimates ETFs purchased 400 tons of gold in the first quarter, and the amount of gold held by the GLD ETF alone is said to be larger than the gold reserves of almost every nation on earth.

But here is my question: Is the gold really there or are we dealing with the possibility of another paper “investment” without substance? Pardon my skepticism, but after the mortgage-backed securities debacle, Madoff Ponzi scams, AIG insurance-type frauds, questionable rating services and assorted accounting schemes, you have to wonder about the viability of the paper gold-silver instruments.

Do we have a fractional reserve type system in paper gold like the banks have with dollars? If all of the paper gold is backed by actual gold, who is auditing what is actually in the vaults? And where is the gold coming from? Mining isn’t producing enough gold to keep up with annual demand, so that leaves central banks as about the only available source. Are they doling out supplies to control prices? And how long can they keep it up?

Lots of intrigue, lots of conspiracy ideas, lots of mystery in the gold market. I don’t have the answers. I just wonder . . . and look for clues on my charts.