Markets seem to want it both ways. The yield on 10-year Treasurys pushed below 3% Tuesday. At the same time, gold rose to $1,242 and remains near record highs.

That seems schizophrenic. The traditional view is gold represents a hedge against inflation, while locking dollars up for 10 years at such low rates only makes sense if there isn't inflation on the horizon. Why the disconnect? The two have basically become a bet against stability, amid uncertainty from Europe's sovereign-debt crisis, doubts on Asian growth and fears of a double-dip U.S. recession.

But investors may be overplaying the safety offered by Treasurys compared with gold.

Treasury investors will do well if deflation is imminent, as some fear. Gold investors, however, could feasibly benefit from either the prospect of deflation or heavy inflation. And the Federal Reserve likely wouldn't allow deflation without a fight. It would probably step back in with quantitative easing, even as the federal government embraced more stimulus spending. That could likely trigger a steep dollar fall, if not against other paper currencies, then against gold. It also would raise the chance the central bank prints too much new money, causing inflation.

If, however, deflation did take hold, gold could yet prove itself as a crisis hedge against more upheaval in the global-banking system. The enemy of both trades is some form of "Goldilocks" economic recovery, with reasonable growth and contained inflation.

But if the immediate future is more instability, gold, despite the fact it generates no yield, should keep giving Treasurys a run for their money.