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By Jonathan Chen

This week, gold crossed the $1,800 level and it looks as if there is no stopping the precious metal, and we could see $2,000 by the end of the month at this rate.

There is a crisis of confidence around the world, and when there is a crisis of confidence, people freak out. When people freak out, everything is sold, whether it deserves to be sold or not. Rock solid names like Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Intel (NASDAQ:INTC) and others are being sold with companies that will not be around in three years. No one knows for sure what the earnings will be on these companies, while just a few short weeks ago, confidence was not fleeting.

As such, when you get a crisis of confidence, money all piles into one place: Precious metals, particularly, gold. Gold has soared over $300 in almost a month's time. That used to be a year's move, and not all in one direction either. After S&P downgraded U.S. debt, the fear level was set to "extreme," and panic started around the world. For those who are saying this is not like 2008, you are right and wrong.

You are right in the sense that corporations are in much better places than they were just three short years ago. Corporate balance sheets are spectacular. However, consumer, investor and business confidence is where it was in 2008. You need confidence for markets to function properly. Good news, bad news, or no news, markets can handle that and function properly, most of the time. When you sap confidence, it is a very different story.

Nobody believes the government anymore, and no one believes the banks. This week, rumor mongers were saying that Societe Generale (OTCPK:SCGLY) could be on the verge of bankruptcy. Obviously this did not happen, but we are seeing this happen in Italy, starting to see it in France, and every so often, we hear German banks being caught up in the rumor mill.

With S&P downgrading the U.S. debt, it sapped confidence across the world, and markets across the world fell sharply. Besides this, we have a weakening economy, Congress has shown no inclination to act and provide fiscal stimulus, and Japan is still rebounding from the devastation it saw in March.

There are still worries about Europe and Greece in particular, according to Joe Foster, portfolio manager for the Van Eck Global International Investors Gold Fund, in an interview with CNN back in July. "Greece is sort of on the verge of default and they're still trying to figure out how to engineer a recovery for Greece without inflicting a default on the country (and) the markets are sensing that's almost impossible," he said to CNN Money. "Until the situation is resolved in these peripheral countries, it's going to drive gold."

Italy, with its over $2 trillion in debt, is going to be a problem for a very long time. It will be until either the European Financial Stability Fund is operational, or it is allowed to restructure its debt, and bond holders take a hair cut. There is no magic solution for a country as large as Italy, whether you want to believe it or not.

When you have a crisis of confidence, everyone heads for the exit. The only door that is open? Gold.

Just do not be surprised when you get to the door, and Ron Paul is the one opening it for you.

Action Items

Bullish:

Traders who believe that confidence will continue to be fleeting in the short term might want to consider the following trades:

  • Buying gold miners such as Barrick Gold (NYSE:ABX), Hecla Mining (NYSE:HL) or Yamana Gold (NYSE:AUY) could prove to be profitable as gold soars to new highs.
  • If traders do not want single equity exposure, they may want to consider ETFs such as SPDR Gold Trust ETF (NYSEARCA:GLD), which tracks the price of gold. Other ETFs to consider are Market Vectors Gold ETF Trust (NYSEARCA:GDX) or Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ).

Bearish:

Traders who believe that investor confidence will come back sooner rather than later may consider alternate positions:

  • If confidence comes back from some outside force, equities could soar. Baidu (NASDAQ:BIDU), Amazon.com (NASDAQ:AMZN), Apple, etc., all could soar from these levels.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Why Gold Is Climbing to $2,000 by the End of August