In last week’s Alert, we told you about the golden canary in the coal mine when it comes to assessing the mood of this market. At the time, we noted that gold was hitting a new, all-time high, and that investments like the SPDR Gold Trust (GLD) continue to deliver cautious investors solid upside in the face of global economic uncertainty.

Well, this week we’ve seen an even bigger rise in gold prices. In Wednesday morning’s trading, gold once again has surged to yet another record high. Former Fed Chairman Alan Greenspan recently said that rising gold prices actually are a sign that investors are getting very nervous about the global economy.

Greenspan warned that a jump in gold prices could be “the canary in the coal mine to keep an eye on.” Well, if gold is in fact the canary in the coal mine, then that canary clearly is signaling that all is not right with the financial markets.

The reason why the shiny metal’s rising price means that all is not right with the markets has much to do with gold’s status as a safety-valve investment during tough economic times. Actually, it comes as no surprise to me that traders moved into both gold and long-term Treasury bonds just one day after the Federal Reserve announced that it was ready to take more action to boost the economy.

Basically, the market is interpreting the central bank’s statement as a signal that it will ramp up its bond-purchasing program. So, if the Fed plans to buy more bonds, then bond prices are going to rise -- i.e., bond yields are going to fall the way they did in Wednesday’s trading.

If we see the Fed start to purchase bonds in any significant quantity, it will lift demand for Treasury bonds while also hurting the value of the U.S. dollar vs. rival foreign currencies. The lower dollar will keep sending investors into hard currencies such as gold, as the value of the yellow metal tends to rise whenever there’s pressure on the greenback.

Now you know why it comes as no surprise to me that bond prices rose (i.e., bond yields fell) and gold prices are making new, all-time highs.

The golden canary has spoken, indeed.