So I managed to grab a shot of this rainbow in a cloud (or so it appeared) and dug into it a little –
It looks like it could be one of these things –
Cloud Iridescence
http://en.wikipedia.org/wiki/Cloud_iridescence
“If parts of clouds have small droplets or crystals of similar size, their cumulative effect is seen as colors. The cloud must be optically thin, so that most rays encounter only a single droplet. Iridescence is therefore mostly seen at cloud edges or in semi-transparent clouds, and newly forming clouds produce the brightest and most colorful iridescence.”
Or more likely
An Optical Halo
http://en.wikipedia.org/wiki/Halo_(optical_phenomenon)
“An halo (from Greek ἅλως, halōs;[1] also known as a nimbus, icebow or gloriole) is an optical phenomenon produced by ice crystals creating colored or white arcs and spots in the sky. Many are near the sun or moon but others are elsewhere and even in the opposite part of the sky. They can also form around artificial lights in very cold weather when ice crystals called diamond dust are floating in the nearby air.”
Obviously this is only a small sections of it, but I still thought it was pretty cool!