During the past month, bonds have returned 1.2 percent to investors, and gold has returned over 3 percent. That’s better than the negative return in stocks and other commodities over the past few weeks.

Both assets are seen as a safe haven for investors during times of uncertainty. And both assets have been in a major bull market. Gold’s run has lasted nearly 10 years now, sending prices from under $300 per ounce to over $1,550. Bonds, at least the U.S. Treasury type, have been going up since the early 1980’s, driving yields from 18 percent to near 0 percent.

I’ve made it clear where I stand in prior blogs: I’m long gold miners, and government bonds look overpriced to me, if not in an outright bubble. But there’s a method to my madness.

Take a look at the following chart. It notes the performance of gold versus long bonds over the past five years:

Story continues below chart.



Click to enlarge

Gold’s huge move compared to bonds over the past five years goes to the key features of a true safe haven: counterparty risk. That’s because a safe haven is only as safe as its counterparty.

When buying a bond, the issuing party is the counterparty, whether that’s a government or a corporation. The person on the other side of the transaction matters.

European banks are learning a painful lesson with the Greek bonds they bought. China is still buying American bonds, but is making it clear they’re not ecstatic about it. The counterparty (and their ability to repay) matters.

Physical gold doesn’t have a counterparty. That’s also why it doesn’t offer interest payments or a dividend. But if we view interest payments as the “risk” one takes on when dealing with a counterparty, one thing is clear: Government bonds aren’t yielding enough given the enormous structural debt problems America faces.

That’s not to say that Uncle Sam will default. At least officially. Money printing could ensure that repaid principal on debt is, actually a loss to bondholders thanks to inflation.

Are bonds overpriced? Yes, but they can still go a bit higher, until the yield hits zero. Is gold overpriced? Not in terms of the number of dollars outstanding relative to the amount of gold in existence. Not in terms of its historical prices when adjusted for inflation.

Don’t get me wrong: I’m not married to gold. If this were a situation like the 1980’s where we had high interest rates and it looked like they were about to decline, I’d want to lock in bonds with high yields.

But in a low-interest rate environment, I lean towards gold as the better safe haven right now. Especially compared to bonds, where the counterparties can (and probably will) print money to meet their obligations.