We are now in the beginning stages of the last deflationary scare ever. The next round of QE should push the bond bubble over the edge as it will drive up commodities and the world will no longer be able to ignore negative real interest rates when inflation heats up a bit more and becomes so bold face apparent and so obvious that even the most dense and in denial will no longer be able to ignore reality.

Bonds rallied tremendously and on top of that extremely weak jobs report last Friday, Europe is having debt problems again mainly in Spain, but in Italy as well as their yields are rising, which is causing an additional push into the perceived “safety” of US bonds. Surprisingly, silver and gold held up very well as the market got creamed.

Is this the beginning of the change in the game to gold and silver being sought after in safety? I can’t yet say, but a change in the game this large is so major that it will take much more than one day of the precious metals rising modestly while the market tanks to convince me so. But at some point, the PM’s will be the ideal “flight to safety” asset.

I expect equities to continue to fall and bonds to continue to rally (but maybe take a brief break because they have rallied so tremendously this last week) until the market acknowledges more QE is coming at which point the “risk on” trade will once again get the green light and wealth will flow out of bonds and back into equities. Of course, more QE will lead to especially large gains in both gold and silver.