"Gold fever breaks out again," says a headline from SF Gate.

The diagnosis, we think, is premature. We checked the news. We found no sign of "fever." Nor did we find much agitation or sweaty palms. The gold market's pulse is strong. Its appetite is good. It looks like it is in fine shape.

Friday, the yellow metal traded at $507 (February contracts).

The second stage of gold's bull market has begun. The public has begun to take notice, but just barely. There is certainly no fever. You can test this yourself. Just ask your friends and neighbors if they have bought any gold lately. Most likely, the response will be same as if you had asked it they had taken up clogging or canasta. "Huh?" They're popular in some circles, but not yet "mainstream."

Even most people who bother to think about it have the wrong idea. "All commodities are going up," they'll tell you, "because of such strong demand from Asia."

As we have pointed out so many times that readers are sick of hearing about it, the world economy may be divided into two parts. In the East, people make, and in the West, they take. In the Orient, people lend, while in the Occident, they borrow. In Asia, they manufacture and save, yet in America, they buy and consume. On the one side of the globe, they create deflation...on the other, inflation.

And yes, it is true, just about everything the Asians can make is going down in price, and holding down prices and wages throughout the world. But things they cannot make - energy, health care, housing, copper...you name it, are going up. And if the Feds have anything to do with it, these prices will go up a lot more. The U.S. money supply, as measured by M3, rose by $42 billion in the week ending November2, 2005. This is what "inflation of the currency," is all about. Eventually and inevitably it ends in higher prices, but for what? For the foreseeable future, it should be prices of things the Chinese can't mass-produce: commodities, energy, and gold.

We noticed a chart of gold compared to other commodities. And guess what? Gold is rising against all major currencies, and all major commodities.

Why is that?

It tells us that there is more going on here than just ordinary "inflation." And we think we know what it is. All the world's governments want weak currencies and mild inflation. And all the world's speculators, including ordinary homeowners, are convinced that central bankers will make sure that nothing interferes with existing trends. The more sure they are, the bigger the bets they are willing to make, and the greater the risk to the financial system. No one knows what will happen, but smart investors are buying insurance: gold.

Christopher Woods forecasts a gold price of $3,700 before the end of the decade. He states, "Gold is the antithesis of the increasingly insane world of asset-backed securities and collateralized debt obligations which purport to be free market creations, but which have only grown to the size they have because of the insidious understanding of all those involved in these exploding markets that central banks will bail out the handful of big intermediaries who dominate dealing in these instruments if there is any real problem."

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