By Sean Williams
It's been a wild year for U.S. stock markets, with investors experiencing the worst start to a new year ever -- an 8% to 10% decline in major U.S. indexes over the first two weeks -- as well as the biggest intra-quarter rally in 83 years. More recently, investors were dealt the "Brexit" blow, with Britain voting 51.9% to 48.1% to leave the European Union. The global stock market declines experienced the day following the Brexit vote wiped out $2.1 trillion in global wealth, and it led to the eighth-biggest point decline in the history of the Dow Jones Industrial Average, 610 points.
Gold and silver put on a show
But it's been an entirely different story for precious metals and the miners that produce these metals. Gold experienced its best single quarter in Q1 in 30 years, and both silver and gold have moved to highs we haven't seen in more than a year.
There are a number of factors at work to explain why gold and silver are soaring.
To start with, gold (and silver, since it tends to follow gold's movements) are safe-haven investments. When there is domestic or global growth uncertainty, or market instability, investors tend to flock to precious metals, which are viewed as a long-term store of value.
Demand for both metals has also been on the rise. We often think about emotions driving spot metal prices, but supply and demand do play a role as well. According to a World Gold Council report released in May, gold demand surged 21% during the first quarter, which is its fastest pace on record. Demand for gold has come from central banks, businesses, and investors. Similarly, the Silver Institute projected earlier this year that silver demand for ethylene oxide and photovoltaics (i.e., solar panels) was expected to rise substantially.
11.7 trillion reasons gold and silver could head much higher
Yet there's an even bigger reason spot gold and silver are soaring and very well could continue to climb. Actually, it's more like 11.7 trillion reasons.
Based on the latest Fitch Ratings report released on Wednesday, $11.7 trillion worth of global debt is now trading in negative-yield territory, including $7.9 trillion from Japan alone. This is a 12.5% increase from just four weeks prior, per the data. Furthermore, Fitch Ratings' report also signals that bond buyers are willing to hold negative-yielding debt for even longer periods of time. Negative-yield debt with maturities of seven or more years totaled $2.6 trillion in Wednesday's released report, which is almost double the amount from April.
What these negative yields imply is that investors are so worried about the global markets that they'd rather take guaranteed nominal losses by holding negative-rate debt than consider investing it in the stock market.