Why gold and silver would boom in a bond market crash, not equities

The fashionable talk in financial markets these days is of a ‘Great Rotation’ from bonds into equities, a smooth transition from the largest bond market bubble in history to a more normal balance between equities and bonds.

It is certainly far from usual to have bonds yielding two per cent and equities twice that amount in many cases. That makes it look attractive to shift from the so-called safe haven of bonds back into the supposedly more risky world of equities.

Look at the move out of bond funds and back into equities and there is certainly evidence that this is happening. The problem comes when the bond market finally blows up. Financial markets do not have a propensity to deflate gradually. The normal thing is for investors to all suddenly lose confidence together and rush for the exit door.

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Where does this leave precious metals as an asset class? Well if money is coming out of bonds and at least temporarily equities in a global financial reset then where does it go? Cash is certainly one place but which currency could you trust? Gold and silver are monetary metals and the oldest currencies of all.

Now both gold and silver are supply-constrained markets. That is why they are often favored over paper money in times of crisis, and a bond market bust certainly will rank as a major global financial crisis.

In fact, gold and silver would become to some extent the only game in town for a while and turn into the ‘ultimate bubble’, as George Soros once put it, before a real ‘Great Rotation’ back into other assets as governments moved to reset the global monetary system, almost inevitably including precious metals as the only thing with value trusted by everybody.

http://www.arabianmoney.net/gold-silver/2013/01/29/why-gold-and-silver-would-boom-in-a-bond-market-crash-not-equities/