Like in nature,

markets often give off subtle warning signs

that something is amiss. Those signals don’t always imply a permanent regime shift, as true structural changes take years to build, much like pressure beneath a volcano. However, when the break finally comes, the eruption can be explosive and the damage catastrophic.

In today’s environment, I believe gold and

sovereign bond markets

are those early steam clouds.

Gold has accelerated sharply

, rising nearly 70 per cent over the past 12 months. Long‑dated bond yields, especially in historically low‑rate countries such as Japan, have also pushed higher and in some cases set new highs. Last week, Japanese 40‑year yields briefly surpassed four per cent, something previously thought impossible for a country long mired in deflationary pressure and driven by rapidly aging demographics.

In my view, the roots of this moment trace back to the post‑2008 period and the

introduction of quantitative easing

(QE). QE unquestionably saved the global financial system, but the problem is that it never stopped once the crisis ended. Each time markets wobbled, central banks stepped back in. The strategy “worked,” as long as bond markets co-operated and kept yields low.

Then COVID hit, and governments got a taste of unlimited fiscal spending. And like QE, they didn’t stop when the emergency ended. Instead, wartime‑like deficits continued, including in the U.S., where last year’s deficit reached six per cent of GDP.

The issue now is that central banks appear close to implementing yet another round of QE, not to stabilize markets but simply to absorb the massive issuance of government debt. That’s where the real danger emerges: currency debasement. When a central bank prints money to finance deficits, the purchasing power of that currency erodes rapidly. This is why a dollar today buys roughly 81 cents in Canada and 78 cents U.S. in America of what it did in 2019.

Fortunately, those who owned assets such as housing and

equities were able to offset

that erosion through inflation in those asset values. Those who held cash, either by necessity or choice, have borne the brunt of the affordability crisis and have been left way behind with no way to catch up.

Adding to this complication is demographics. A large concentration of those assets is held by aging baby boomers who may soon need to sell. But the next generations are unwilling — or unable — to take on heavy leverage at today’s higher rates. If the bond market continues pushing back, we could face the worst possible combination: falling home and stock prices in an environment of ongoing debasement.

This dynamic could intensify if global governments continue reducing their U.S. Treasury holdings and reallocating reserves into gold. Momentum is already building: Central banks now own more gold than Treasuries for the first time in three decades.

As an investor

, doing nothing is not an option. Now is an ideal time to

revisit your portfolio

. Start by examining your government bond exposure, especially in jurisdictions such as Canada, where the federal government holds no gold reserves and where 10‑year yields near three per cent offer little compensation for the level of risk.

Commodity‑based economies typically provide some protection against debasement, but Canada remains an exception. Excessive regulation and policy uncertainty have constrained the sector, with discussions still stuck at the Memorandum of Understanding (MOU) stage instead of translating into real action.

In our portfolios at TriVest Wealth Counsel, we have been increasing our exposure — both through physical gold ETFs and gold producers — while also adding selective positions in other metal producers such as copper, which provide additional protection against the declining purchasing power of our currency.

We don’t own a single sovereign bond. Instead, we use structured notes with substantial downside barriers and attractive yields, along with twin‑wins that can generate returns if markets remain flat or even negative, while also offering amplified upside if markets continue to trend higher.

We also have been increasing our exposure to high‑dividend companies operating in sectors with strong competitive moats as a resilience strategy. We like segments including utilities, infrastructure and select telecommunications companies.

When it comes to protecting your wealth, doing nothing is the greatest hazard, be it postponing overdue portfolio changes or hiding in cash as inflation chips away at its value. As with a restless mountain, the signs are visible long before the explosion; ignore them, and you may find the volcano erupting at your feet.

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Martin Pelletier, CFA, is a senior portfolio manager at Wellington-Altus Private Counsel Inc., operating as TriVest Wealth Counsel, a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax, estate and wealth planning. The opinions expressed are not necessarily those of Wellington-Altus.

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