“This divergence started two weeks ago, and we've seen it continuing. Yesterday was another good example. The gold miners were basically unchanged and gold was up $14 even though the Dow Jones Industrials dropped -1.3%.

Silver is also diverging in this positive way as it was up yesterday too. Even the -3.2% drop in the price of crude oil didn't stop all the money flowing into gold and silver yesterday. Buying power in the precious metals is stronger than any selling pressure.

There are a couple of things happening that are causing gold and silver to show this independent strength and go their own way regardless what is happening to global stock markets. The big money guys -- and I am including here those central banks buying gold -- know that gold is cheap and undervalued by its historical measures.

Second, more and more people are starting to understand why gold is a safe haven. As you and I have discussed many times, Eric, gold does not have counterparty risk, but it is also becoming clear that gold is a safe haven for another reason. Gold's price is not falling even though stock markets around the world are in a nosedive.

So the money coming out of the stock market is not only going into German and US government paper; it is also going into gold and silver, which is a trend that I think will accelerate as the crisis worsens. And it will no doubt worsen because the banks hold too many bad loans that need to be written off and too much government paper, the value of which is being increasingly questioned.

For example, Spain's borrowing costs are near the danger point that led to the crises in Greece and Ireland. In addition to covering its huge budget deficits, Spain is now burdened by trying to find the EUR 20 billion it needs to keep that country's fourth largest bank afloat. Bankia may be that country's worst bank, but it is not the only Spanish bank sitting on a pile of doubtful real estate loans made during the bubble years. Where will Spain get the cash needed for the other Spanish banks that need assistance?

“The global financial situation is really starting to spin out of control, Eric. It won't be long now before the Federal Reserve, ECB, Bank of Japan and Bank of England start more QE in an attempt to keep global stock markets from imploding and causing another Lehman Brothers collapse.”

“But let's call QE what is really is, which of course is ‘money printing’. And clearly, while all that new money won't solve the problem of bank and government insolvency, Eric, you can be sure it will do one thing -- it will send gold higher.

The likelihood of more money printing may in fact be one reason that gold and the mining shares are starting to hold their own. In other words, gold and the mining shares have been generally rising -- or at least, only going down a little -- when the overall stock market is dropping....

Both banks and governments are too highly leveraged. Monetary history clearly demonstrates that too much debt is a recipe for disaster. We saw one disaster in September 2008 when Lehman collapsed, and it looks like another disaster is coming soon. This one promises to be even worse because few, if any, of the underlying problems have been solved over the past four years.

Importantly, the way gold and silver are now diverging from global stock markets is different from what happened when Lehman Brothers collapsed. Back then, in the rush for liquidity, gold and silver were sold heavily. The baby was thrown out with the bath water in that liquidity event. The difference this time around is that everybody is liquid. The Fed, ECB and other central banks have seen to that.

Therefore, the independent strength in gold and silver can only mean one thing. We are in the early stages of a fear event. As the fear of insolvent banks and broken government promises grows, people will increasingly move out of paper assets of all types and into physical gold and silver.”