At first glance, it appears as if the gold bugs, those bullish on gold, have been stepped on this year. Spot gold is down nearly 30% from its peak of $1033 an ounce set earlier in the year.

But a two tiered market has developed where speculators have been badly burned trading gold futures, while some investors holding actual physical gold have not only managed to keep their shirts, but have held on to gains for the year.

Dealers and analysts are calling it an “upside down” market where physical gold, including coins and bars, are in short supply and far more expensive than the price quoted on New York Mercantile Exchange’s COMEX division.

What’s sparking the demand for physical gold? You need to look no further than the financial landscape surrounding investors.

“I’ve never seen anything like this,” says Scott A. Travers, author of The Coin Collector’s Survival Manual. “1979 and 1980, the go-go years of Jimmy Carter, gas lines, inflation, interest rates at extraordinary levels had people rushing to tangibles. The frenzied pace for yellow metal today has exceeded those tumultuous levels.”

On top of a slowing economy, liquidation by cash hungry hedge funds has gotten much of the blame for the slide in commodities futures prices including the metals group.

In recent trading, the active December contract has traded in the area of $740 per ounce, while one-ounce bars of gold have been trading at or near 20% premiums to the front-month futures contract, according to gold dealers. Usually the premium is only about 5%.

The same goes for silver, where Comex paper futures are trading at just over $9 an ounce, compared to physical supplies commanding prices above $12 an ounce.

There’s an even greater discrepancy involving average uncirculated one-ounce late 19th and early 20th century gold coins known as $20 Liberty and $20 St. Gaudens coins. These particular gold coins, which normally attract a price of about $70 an ounce above spot, are attracting bids of at least $1,100 a piece.

Online auction sites have experienced active auctions for one-ounce gold coins. A quick check of eBay (EBAY) yields a variety of examples of gold coins trading at big premiums to the spot price. A 1908 one ounce $20 Double Gold Eagle had attracted more than two dozen bids and price of over $1200.

Says Travers, “physical gold does well in times of economic distress, calamity and blood in the streets,” adding that “gold is really a quasi-currency; as people worry about a possible collapse of the banking system. With (Treasury Secretary) Paulson’s change of policy on how to use TARP funds, the collapse of the global banking system is still not off the table.”

While the price of gold futures has sunk into the low $700 per ounce range, World Gold Council data show that a pricing floor may be developing, even for beaten-down Comex contracts, due to lower gold production. Through the second half of the year, the Gold Council reported a 4% drop in mining output and a decline in central bank sales.