And this must mean something and probably nothing good

considering gold's long-held association with fear,

hoarding, inflation, and, to exaggerate slightly,

the collapse of the modern monetary system.

So why is the yellow metal so strong?

To begin with, gold is priced in dollars.

And the dollar has recently hit a two-year low.

So the question becomes, why is the dollar weak?

And the standard explanation for this

is low expected US economic growth.

This in turn depresses interest rates and bond yields,

diminishing investors' demand for dollars

with which to buy US assets.

And indeed, as we can see, bond yields

are stuck at a very low level, but it is worse than that.

Not only are bond yields low, but at the same time,

inflation expectations are rising

as the Federal Reserve keen to protect the American economy

is printing dollars and cramming them into the US economy.

This means that real yields, that

is, yields after inflation, are not just low.

They are falling.

And when real yields fall, gold which yields nothing

at all almost always rises.

So all of these factors fit together.

Gold, the dollar, bond yields, inflation expectations,

falling real yields - they all make a certain logical sense.

Should we therefore be buying gold today?

Well, in order for gold's ascent to continue,

real yields have to continue to fall.

This requires that inflation expectations

keep going up at the same time as low growth expectations keep

nominal yields pinned right where they are.

This is the dreaded stagflation.

Back in 2011, in the last crisis, like today,

the Fed was intervening strongly in a sluggish economy

and Washington was in turmoil.

Investors then made the same bet on stagflation and gold.

As it turns out, they were wrong.

The price of gold got cut in half

in the years that followed.

In fact, all predictions of inflation since the last crisis

have turned out to be similarly wrong.

And all efforts by the Federal Reserve

to get inflation up to its two per cent target have failed.

So a bet on stagflation and gold now

is a bet against recent history.

That many investors are willing to take that wager shows just

how frightened they really are.