Forget the Bond Vigilantes. It’s the Gold Vigilantes You Need to Worry About.

Precious metals prices are soaring. The bond market is sleeping. That’s worth watching. (Getty Images)

Fixed-income markets, and U.S. Treasury bonds in particular, are often assigned the grim task of officiating the daily contests played out in financial arenas around the world. Today, gold and other precious metals occupy that position.

The bond vigilantes, as first coined by Wall Street veteran Ed Yardeni, sniff out government largess, corporate profligacy, geopolitical tremors, and inflation risks long before other financial assets and respond in kind. And by the sheer brute force of its size, bond markets force both the subjects of its wrath, and the investors that rely on them, into submission.

This year hasn’t seen much from the famed financial market guardians, however, despite a plethora of headline risks that should have triggered big repricings in Treasury bonds and the reshaping of the yield curve.

Inflation-inducing tariffs, a tax and spending bill that will add trillions to the U.S. debt pile, attacks on Federal Reserve independence, and a historic slump in the dollar have largely gone untested by the bond vigilantes.

Longer dated yields are definitely on the rise in some markets, but the U.S. Treasury curve has taken a “bull steepening” shape that reflects bets on deeper Fed rate cuts and an indifference to inflation risks heading into 2026.

Corporate credit spreads, which track the excess yields companies need to pay beyond risk-free Treasury bonds to access borrowing markets, are trading near the lowest levels on record.

The Merrill Lynch Option Volatility Estimate, better known as the MOVE index and a key bond market volatility benchmark, is trading at the lowest levels since 2021. Broader market volatility gauges, such as the Cboe Group’s VIX index, are pinned at the lowest levels of the year.

That’s left much of this year’s heavy lifting to precious metals investors, who have kept global markets alert to issues such as currency debasement, inflation pressures, reckless government debt levels, and geopolitical angst with some of the biggest annual gains on record.

Gold prices have surged more than 70% since the start of the year, and topped the $4500 mark in early Wednesday trading, a record high that would have been nearly unthinkable just a few years ago.

Silver’s run has been even more impressive, rising just over 150% to blow past the $70 mark in what has been the strongest year for precious metals prices since 1979.

“We doubt this reflects a rebound in global economic activity, as prices of basic metals, which are more closely linked to industrial production, have increased by much less,” Ed Ed Yardeni said in a note published Tuesday by his Yardeni Research group.

“We suspect that the precious metals prices might be signaling recent concerns about an excessively stimulative combination of monetary and fiscal policies in the U.S. next year,” he added.

It’s also likely reflecting concern to the U.S. blockade of Venezuela’s oil exports, most of which are destined for China, as well as the lack of any progress in peace talks between Russia and Ukraine.

“The risk of further escalation, particularly if it spreads to Venezuelan allies such as China or Russia, has added a geopolitical risk premium to gold,” said Adam Turnquist, chief technical strategist for LPL Financial.

Gold’s surge, and the conditions that underpin it, haven’t stood in the way of broader risk sentiment in equities, however. U.S. stocks are back to their winning ways and riding a four-day streak of gains that has the S&P 500 sitting at a fresh all-time peak.

Analysts are forecasting another year of double-digit percentage gains for the benchmark in 2026, with the current bull market likely to stretch into a fifth year on the back of artificial intelligence investments, a dovish central bank and a suddenly roaring domestic economy.

But all of it comes at a cost. U.S. debt is likely to top $40 trillion next year, based on current deficit projections, which won’t be helped by Trump administration plans for $2000 “tariff dividend” checks.

Tariffs, meanwhile, are likely to help keep headline inflation levels north of the Fed’s 2% target while AI and tech-led advances will continue to erode growth in the labor market.

Heading into 2026, however, it feels as if the only asset prices that will reflect that trade-off in equity growth will be found in the precious metals markets. And it could be bullish for both.

“The price of gold is rapidly approaching the S&P 500 stock price index,” Yardeni said. “If the S&P 500 reaches 10,000 by the end of 2029, as we expect, gold should trade at $10,000 if our trend analysis is correct.”

Let the gold vigilantes ride.

Write to Martin Baccardax at martin.baccardax@barrons.com