Gold prices exploded Wednesday-posting the biggest one-day gain ever in dollar terms-as fears of more credit market turmoil unnerved investors and triggered a flood of safe-haven buying. Gold for December delivery rose as much as $90.40, or 11.6 percent, to $870.90 an ounce in after-hours trading on the New York Mercantile Exchange after jumping $70 to settle at $850.50 in the regular session. That was the biggest one-day price jump ever; gold's previous single-day record was a $64 gain on Jan. 29, 1980. In percentage terms, it was gold's largest one-day advance since 1999. The huge rally came after the government moved overnight to rescue troubled insurer American International Group Inc. with an $85 million bailout loan. The Federal Reserve stepped in after AIG, teetering on collapse from losses tied to the subprime crisis and the credit crisis, failed to find adequate capital in the private sector. – AP

Dominant Social Theme: It's just nerves. Don't pay any attention. An aberration.

Free-Market Analysis: When we recently listed our 10 reasons we thought the gold bull market was not finished, as some might suggest, we could have been even more emphatic about number 10, given the gold price explosion that just took place. Anyway, here it is again. It bears noting …

"Back at UBS the Bank states that it has seen "unprecedented" gold demand from India, from European consumers and from other Asian clients, that demand is very strong in Turkey and the Middle East and that it should pick up in Italy as of early September as the holiday season draws to a close. UBS is not alone in seeing this interest, with some Indian jewelers having to turn away clients and, with the Wedding and Festival seasons imminent, demand is expected to remain robust for the next few weeks. Diwali (the Festival of Lights, which is a very important Hindu Festival, the largest gift-giving and shopping festival in India and most popular for gold purchases, falls this year on 28th October." (Posted on MineWeb on August 10, 2008).

It didn't make sense to us that gold and silver would be lapsing into a bear market, given both the amount of money that central banks are throwing at the markets and the amount of nervousness as well. And while yesterday's price action might be aberrant, we would argue that it is a largish bump on the way up, not on the way down. Gold and silver are commodities, sure, but they are special commodities and act differently than normal commodities. When people get nervous about money, they don't start buying corn or wheat or even diesel fuel. They usually start buying and "hoarding" real money.

This trend has likely been exacerbated by the Internet which has educated many over the past years about the advantages of holding honest money in numerous forms. And all of this put together is probably giving the monetary elite a pretty good case of indigestion. In fact, yesterday's price action is yet another reason why central bankers absolutely hate gold.

The mainstream Western media, especially in America, have been filled with articles about "where to put your money now." And inexplicably but quite predictably, few of the articles even MENTION gold. To write an article in this day and age for a mainstream publication and not mention gold as a safe haven is pretty incredible in our eyes. But it happens in the Western press, especially America, every day.

Anyway, when gold pops up the way it just did, it does quite a lot of things to the fiat money game. First, it brings into question fiat money safe-havens which have been torturously worked out to provide all sorts of alternatives to gold. Second, it ruins years of propaganda in which gold and silver have been excoriated as impractical, difficult to hold and illiquid. Finally, it simply points out again that deep down people don't have a great deal of faith in fiat money. When the going gets tough, people buy precious metals.

Precious metals are dug from the earth. It takes a good deal of effort to extract gold or silver. They are malleable, lustrous, useful and portable. Gold and silver are accepted everywhere on earth, especially at times like these. How much effort does it take to create fiat money?The push of a button. This is why gold and silver have significant value no matter what the circumstances are. Fiat money has more or less value depending on a given circumstance. And who really wants money that loses a lot of value during economic panics? They don't point out that, though, when they are handing that "cash" across the teller window. It looks pretty good then, especially if it is new.

Here's another thought to chew on in these nervous times. Don't let people tell you that there is not enough gold and silver to go around, were we ever by default to move back to a gold or silver standard. If the world did once again return to bimetallism, and it may one day do so, willy nilly, gold and silver would soon establish economy-driven value-ratios. Too little gold or silver and the prices of gold and silver would move up, causing more mines to open up. Too much gold and silver, and mines would shut down.

The system is not perfect, but it is a natural MARKET system, not a guessing game. If you can find a central banker (and they all seem to be clumping these days like platelets) you might want to ask him or her how do they know how much money is too much? The answer is that they don't. But in a market economy, the supply of gold and silver would be regulated by the invisible hand of the market itself. Simple.

We can almost guarantee you that what caused central bankers the most heartburn recently was not another market sell off so much as the rising price of gold and silver. It shows that no matter how much is done to pave way the way for a universal currency and central bank, the dream remains elusive. Each time these "Masters of the Universe" think they have "talked" and written honest money into oblivion as a serious contender to fiat, it pops back up again. Frustrating, you bet. Predictable, too. Guess that's what happens when you try to erase 6,000 years of honest money memory from the world.