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The gold market continues to show several signs of significant underlying strength and appears poised for further upside. With the $1400 per ounce level within site, the bulls will likely continue to push for higher prices as ongoing risk aversion keeps buyers on their toes.

Investors are getting numerous mixed signals currently, and some significant market volatility could potentially be in store. While Friday’s Employment Situation report showed the U.S. added 287,000 jobs in June and was far beyond consensus estimates, the reality is that a large number of people have simply given up and are not actively looking for work.

Stock investors cheered the release of the non-farm payrolls data, and drove the S&P500 to within easy striking distance of fresh all-time highs. On the other hand, however, interest rates remain near all-time lows and thus far have not shown signs of bottoming.

In other words, the bond market is saying economic troubles may still lie ahead while the stock market is choosing to shrug off many of the numerous issues that could potentially weigh on global markets.

This divergence between stocks and yields will likely not last very long, and at some point something’s got to give.

While the gold market has many reasons to see higher price levels, risk aversion and concerns over the global economy are likely one of the main drivers currently. It would seem that both the treasury markets and the precious metals markets see challenges ahead.

The fact that stocks recovered almost immediately from the sell-off seen following the June 23^rd Brexit referendum may not point to underlying strength in equities or companies, but rather the fact that stocks may just be the only game in town right now.  

With the ten year note yielding less than 1.4 percent, many investors seem content taking their chances with equities.

Unfortunately, the rally in equities remains vulnerable to an abrupt end, and a reversal that could make 2008 or 2009 look like a day at the beach.

Investors are already looking to gold and other perceived safe havens for refuge, and should the stock market bubble suddenly pop, gold could potentially see a massive influx of investment capital.

Perhaps continuing to fuel the stock market bubble is the notion of lower rates for longer. Even in spite of Friday’s non-farm payrolls data, many key economic indicators point to sluggish growth. Given ongoing difficulties in the U.S. and the state of the global economy, it is difficult to imagine a scenario in which the Fed would become more aggressive regarding monetary policy.

So for now, it seems that the easy money spigot will remain fully open, and if necessary, the central bank could even cut rates again in the future.

The current situation with interest rates could be considered bullish for both stocks and gold, with some key differences.

Rates are not likely to rise by any significant amount anytime soon, and that may keep gold and precious metals on the offensive. On the other hand, however, stocks may only run so far before extreme valuations and even a hint of higher rates take their toll.

The bottom line may be this: Equity investments here could be extremely risky given the upside seen in stocks in recent years and the economic weakness seen around the globe. Gold, on the other hand, could be at the beginning stages of a prolonged bullish cycle that could potentially see prices several hundred dollars or more per ounce higher than current levels.

Given the uncertainty surrounding the possible effects of Brexit, the spread of negative interest rates and a weak global economy, what do you think is the better bet?