Man, what a difference a few days makes in the currency markets.

For starters, the market got some shockers last week when European Central Bank President Jean-Claude Trichet came out and said that he may raise interest rates next month.

Now he didn’t say he would raise them, but he didn’t rule them out either. And this does show where his bias lies.

I’ve never heard Trichet be quite as blunt in any of his speeches as he was then. So you can tell that rising inflation is getting in his craw. However, he’s in a tough spot because he’s very uncomfortable with the EUR/USD exchange rate being as high as it is.

Plus, a high interest rate and a high exchange rate are starting to cause hard times for the European economy in a fundamental way. In fact, several of their numbers have been missing estimates lately, once a rarity.

So when Trichet “popped off” that comment last week, it instantly set the euro soaring against almost any other currency, but especially against the dollar.

Then at the end of last week, the unemployment rate came out for the United States.

Previously, it was at 5 percent and expected to inch up a hair. However, it launched a half-point higher in just a month’s time. That fast of an increase hasn’t happened since 1986.

So with now 5.5 percent of America unemployed, it’s starting to be watched very closely, not only by traders but also by politicians. Don’t forget that elections are coming up.

No one wants to be the president that was in office or coming into office with soaring unemployment. So, once again, this sent the dollar tanking and the euro soaring.

Why? Well, a couple of reasons. More unemployed people means less money sloshing around in the retail stores to be spent. Less spending will spill over into corporate earnings, which may prompt more layoffs, and even less spending. The cycle begins.

Of course the other main reason is interest rates. Precisely, how can you raise interest rates as a Fed chairman if you know that it will likely slow down corporate America even more, and make a bad situation worse?

Yet, Fed chief Ben Bernanke has to control inflation. He also has to help keep America employed and not kill the little bit of growth that we do have in the economy right now.

So what are the central bankers to do? Both Trichet and U.S. Federal Reserve Chairman Bernanke are between a rock and a hard place. Trichet needs higher rates to squelch inflation, yet he also needs a thriving economy and a lower exchange rate. You can’t get all of that at once. So now comes the hard choices.

Bernanke needs to kill high inflation yet keep America employed, but he and Treasury Secretary Henry Paulson need to support the dollar as well. If they lower rates, they’ll stoke inflation and possibly cause the dollar to head lower, pushing the euro into the stratosphere.

So how does all of this unfold without the Eurozone or American economies getting clobbered? It’s not going to be easy.

That’s the tough part about the stagflation that’s been building in the economy. Growth slumps, yet inflation doesn’t come down. In fact, inflation goes even higher even as growth slows.

So you’ve either got to attack inflation, which means growth and employment could suffer, or you can allow inflation to get out of hand (a nightmare for a central bank) and allow the economy to grow.

With all of the hard choices and confusion in the air, guess where big institutions are running to wait it out?

They’re running to the Swiss franc and to gold. Remember, I said the euro has gained against almost every currency out there. Well, the one that it hasn't gained against (even as the European bank considers a rate hike) has been the Swiss franc.

That’s right. The euro actually lost ground against the Swiss franc on these days of uncertainty and even on the day that Trichet hinted at a rate hike. Normally that would send the euro soaring across the board, and it almost did.

I couldn’t help but notice on these days though where the money was flowing. It never ceases to amaze me. Switzerland is not safer that any other currency; the Swiss sold off all of the gold that once backed their currency years ago.

Yet traders in uncertain times instinctively run to this currency as if it were still backed by gold. So that’s one of the safety zones. Not because it is one in reality but because it’s still treated as one by traders — which ends up making it one.

The other currency of course is the true currency — gold itself. Everything else is a piece of paper backed by faith in the government that prints it.

When that confidence and faith erodes, traders run to the oldest currency known, which is gold.

After a huge pullback from over $1,030 (which was way overdone), gold has pulled back to around its 200 day moving average, which gives it a healthier spot to relaunch upward in these uncertain times.

So there’s your safety zones: A real safety zone in times like these (gold) and the place traders instinctively go out of habit (the Swiss franc).

Should more uncertainty persist — and believe me it could in these days of stagflation —then expect more money flows into the Swiss franc and into gold.