I do understand the risk to the monetary system. That's why I'm advocating diversifying into precious metals and commodities as well. That's something that seems rarely mentioned in investment advice, but ETFs make it relatively easy now.
Wait a minute, you're worried that bonds have had a big run up in prices and are now overvalued, yet you want to get into precious metals?
Precious metals have increased because investors no longer believe that paper currency is a reliable store of wealth along with a huge increase in the Fed balance sheet. Also, there is some evidence that large US banks have conspired to keep the metals market artificially constrained, especially the silver market. While precious metals have had a huge runup, the fundamentals are still strong for future appreciation (large Fed balance sheet for the foreseeable future, unstable monetary policies) and therefore, I don't see the risk to the downside in the metals.
> Precious metals have increased because investors no longer believe that paper currency is a reliable store of wealth
Isn't that also a flight to safety, then? Not an identical variety of safety, but both seem to be driven by the same move-your-wealth-somewhere-safe sentiment that the financial crisis induced; some people picked U.S. treasuries, other people picked gold or copper or whatever. It's possible that one of those flights will be longer-lasting, though, if that's what you're predicting.
Gold prices in particular are also very dependent on central bank policy, because a large portion of the current value of gold is dependent on large quantities being held out of the market by central banks. It's close to fiat money in that sense, in that its value is dependent on central-bank policy propping it up. I'd be willing to grant that the policy risk is lower, though: while Federal Reserve action could tank either treasury prices or gold prices, the likelihood of the Federal Reserve tanking treasury prices is probably higher. But if it decided to sell of any significant portion of its 9,000 tons of gold to raise revenue...
You didn't say you were chasing a particular return, but that you were chasing safety. Bonds have a special property in that they combine being very flexible and are considered to be very safe. I think this creates a demand for them due to that combination, rather than due to their return on investment.
I don't see the evidence that they are that safe. Certainly, history shows many examples of governments which have spiraled into debt and inflated or defaulted.
But so long as there's a population that acts along this logic, it would seem that bonds will function as a nice, flexible store of value.
> ETFs make it relatively easy now.
If I was investing in that sort of ETF, I'd be concerned about upside. Holding commodities can be nice in a black swan event. But ETFs with counterparty risk may themselves fall over at such a time.
And this is not just in case of a "black swan" event, it is a counter to the very high rates of inflation we're seeing.
You're right that ETFs have counter party risk, holding physical gold or platinum has little risk. (You can hold it in a safe deposit box, or in a very small cardboard box well hidden in your house and have pretty good surety that no thief will ever find it. Even $100,000 in platinum is very compact.)