From Richard Russell in Dow Theory Letters:

... [Say] hello to deflation. The signs of "too-low inflation" (Fed speak for deflation) are flashing everywhere, and the bond market is adjusting to discount deflation. This from Bloomberg – Treasury Two-Year Note Yields Tumble to a Record Low as Economy Weakens...

Russell Comment – We're moving very close to actual deflation – the bond market is saying it. At this point the Fed is very nervous. Therefore, I expect the Fed to start big time printing ("quantitative easing") very shortly.

This is what's holding gold above 1000, and, so far, above 1100. The Bernanke Fed has a well-advertised formula for defeating deflation. The formula consists of printing more money, which is obviously inflationary. The massive creation of more money dilutes the purchasing power of the dollar. Frankly, the deflationary forces are hitting much faster than I thought they would. This must be what the stock market has been telling us. The stock market deflates first (as it has been doing), and the economy follows.

Crux Note: Learn more about the excellent Dow Theory Letters here.

More from Richard Russell:

Richard Russell: Don't be fooled by bear market rallies

Richard Russell: "This market has nowhere to go but down"

Richard Russell: Everything you need to know about gold in three sentences