What a beautiful city! We’re talking about London. It was all dressed up for Christmas last night. And we got to see quite a bit of it. Student protestors blocked the streets around Trafalgar Square…and there was so much snow and ice…taxis must have stayed home. We walked from Mayfair to Southwark, using one of the pedestrian bridges to get over the river.

It was snowing – large flakes floated down and settled on the sidewalks. There were Christmas trees and toys in the shop windows…along with the usual fashions, paintings and jewelry. People gathered in warm pubs and cafes to escape the cold; they looked so inviting, we wanted to stop in each one and have a drink. The Royal Festival Hall was brightly lit up…as were all the major buildings along the Thames.

We’ve never seen it so lovely. Too bad we’re leaving town this morning…on our way to Mumbai (aka Bombay.)

Uh oh… What’s this? Gatwick Airport is closed. Our flight is delayed. Well…more time to reckon!

But what are we reckoning with…oh yes…money. Alas, the world of money looks much less attractive than the world outside our snow-bound window. In fact, it is downright ugly.

The stock market seems to be rolling over. Yesterday, the Dow fell 46 points, not enough to make much of a difference.

Gold rose $18.

Here’s what we see – Big Risks/Little Rewards. That is probably what gold market buyers see too.

You’d expect gold to rise when there is consumer price inflation. And there is quite a bit of it. But not in the US…nor in most of the developed countries.

Maybe some people are buying gold to protect themselves from inflation, but it looks to us as though they are buying it for another reason – because they are fearful that something is going to go wrong.

Right now, world financial authorities have a number of balls in the air – China’s property bubble…its excess capital investment…its rising inflation; Europe’s collapsing bank debt…the euro…government funding problems; America’s continued housing decline…high unemployment…overpriced stocks and bonds…Ben Bernanke and QE2.

Gold market investors are betting that the authorities are going to drop one of these balls. Maybe more.

Remember, these are the same klutzes who saw no trouble coming…and then misunderstood it when it arrived…and made things worse.

And in Europe alone, they will need more than two hands. Here’s the latest from the Telegraph:

Contagion strikes Italy as Ireland bailout fails to calm markets

Spreads on Italian and Belgian bonds jumped to a post-EMU high as the sell-off moved beyond the battered trio of Ireland, Portugal, and Spain, raising concerns that the crisis could start to turn systemic. It was the worst single day in Mediterranean markets since the launch of monetary union.

The euro fell sharply to a two-month low of €1.3064 against the dollar, while bourses slid across the world. The FTSE 100 fell almost 118 points to 5,550, while the Dow was off 120 points in early trading.

“The crisis is intensifying and worsening,” said Nick Matthews, a credit expert at RBS. “Bond purchases by the European Central Bank are the only anti-contagion weapon left. It needs to act much more aggressively.”

Meanwhile, in Ireland, the public mood is turning as dark as December.

Irish voters are threatening to turn away the rescue boats and instead throw the bankers overboard. The Telegraph report continues:

One poll suggested a majority of Irish voters favour default on Ireland’s bank debt. Popular fury raises the “political risk” that a new government elected next year will turn its back on the deal.

Premier Brian Cowen said there was no other option. “We are not an irresponsible country, “ he said, adding that Brussels had squashed any idea of haircuts on senior debt. Irish ministers say privately that Ireland is being forced to hold the line to prevent a pan-European bank run.

There is bitterness over the EU-IMF loan rate of 5.8pc, which may be too high to allow Ireland to claw its way out of a debt trap. Interest payments will reach a quarter of total revenues by 2014. Moody’s says the average trigger for default in recent history worldwide has been 22pc.

If Ireland shirks its debt load, others will too. And then, the euro will collapse. (It fell below $1.30 yesterday.) And if the euro goes…so does world trade. And if world trade collapses so do the US stock market and the US economy.

And remember, that’s just one of the risks. There are more.

So what should you do?

Easy. Buy gold on dips. Sell stocks on rallies. Don’t worry. Be happy.

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.