With gold bouncing up from $1,668 an ounce on Friday, August 5 to $1,778 on Tuesday, August 9, it was the biggest three-day rally since the start of the great recession in 2008. At the same time, the equities markets were falling precipitously, losing over 600 points on the Dow on Monday alone. What is the connection?

The easy answer is fear, loss of confidence, and uncertainty. A credit rating agency has taken away the United States' top-tier AAA rating on its bonds, the spreading debt crisis in the Eurozone has now reached Italy and Spain, and the assumptions tying the financial system together are beginning to be questioned. In its report entitled “On the Coming Gold War,” Redburn Partners says a “rising gold price is a warning signal: it casts doubt on the US economy…. Gold is the only asset to outperform in periods of either uncontrollable inflation or deflation: the US economy is on the knife-edge between the two … gold is a vital barometer.”

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