Gold Extends to the Upside, Silver Consolidates

Gold extended to the upside in overseas trading, establishing a new 28-month high at 1375.15. Silver is consolidating recent gains around $20.

Have you noticed that when alternative assets like precious metals are making new highs, the financial media is typically pretty quick in identifying the bull market as a bubble? Have you noticed that the more traditional assets — the bread and butter of Wall Street — are treated differently?

The recent price activity in the bond market is a case in point: Many benchmark bonds continue to set new record highs, driving yields to record lows. In many instances, these yields are now negative. In fact, Fitch Ratings says there is now a whopping $11.7 trillion in negative yielding bonds. That's a 12.5% increase from the end of May, a nearly double the negative yielding debt seen in April.

While U.S. sovereign yields remain in positive territory, we've seen fresh record lows in the wake of the UK Brexit vote. Fed chair Yellen has said repeatedly that she will not rule out negative rates here in the U.S. As a result of persistent low inflation expectations, TIPS have been trading with a negative yield for the last 6-years.

While there are definitely warnings about the bond market out there, but it's nothing like the headlines we endured during gold's rise in the wake of the financial crisis. Maybe there is some reluctance to call the bond market a bubble because it is the world's central banks that are the source for much of the buying. Nonetheless, one has to wonder how long this can possibly last.

A MoneyWeek article that I posted earlier this morning, there was this dire warning:

Either the bond market is pricing in a very extreme negative economic outcome, or it’s incredibly overvalued.

One way or another, someone’s going to get a nasty surprise…

Bond guru Bill Gross has noted that bonds yields are the lowest they've been in 500-years of recorded history. "This is a supernova that will explode one day," he warned.

If the global bond market goes 'supernova', the consequences could well be cataclysmic. If the world's sovereign debt is suddenly no longer considered a safe place to be, where might that capital flow next? I suspect it will look to gold.

If just a small fraction of investors move out of negative yielding debt and seek a haven in the yellow metal, the gold market will be overwhelmed. Physical supply could dry-up in a heartbeat. Don't be on the receiving end of the aforementioned "nasty surrise." Get your gold sooner, rather than later . . .