Gold. What can you say about it? It looks like the sun. So… maybe it’s a god?
That was the investment case for earlier versions of humans, and frankly, I’m not sure the underlying rationale’s changed much over the millennia.
The gold bugs among you will scoff and ask me how much a can of Coke costs today in dollars versus a long time ago, and then you’ll do the same math for gold, your point being that gold’s a time-tested store of value, whereas the dollar’s just worthless scrip.
I’ll point out that if you go to Kroger and try to buy a 12-pack of Coke with gold, you won’t be able to do it, then I’ll resort to ad hominem and note that as a gold bug, you probably believe Peter Schiff’s a smart guy, Donald Trump’s a good president, Treasurys are “debt” and Elon Musk’s a free speech advocate.
Anyway, I wrote about gold earlier this month, and unfortunately I’m compelled to write about it again. Mostly because it keeps going up. Specifically, it’s gunning for an eighth consecutive weekly advance.
As the figure shows, if gold rallies this week, it’ll be the longest run since 2020.
Note that when I say “unfortunately” in the context of feeling compelled to write about gold, I don’t mean that I’m perturbed by the prospect of a gold rally. Rather, what I mean is that there’s nothing to “analyze” when it comes to gold. Everyone with any sense about them has an allocation to gold in their portfolio of anywhere between 5% and 15%, and that’s pretty much the end of the story. Anyone who spends their days “analyzing” gold is a charlatan to the extent they’re peddling that analysis to the public, and they’re a charlatan twice if they accept payment for that analysis in dollars or anything other than ingots.
Here’s all the analysis you’ll ever need when it comes to gold: It has no internal rate of return, so it’s a reverse real yields play (or at least it used to be, and presumably will be again at some point), it’s hopefully uncorrelated to most of your other assets and it tends to do ok when the world’s going to hell in a handbasket despite having very little, if any, practical utility in an apocalypse scenario (you can’t eat it, drink it or burn it, and Scrooge McDuck notwithstanding, you can’t bathe in it either). Tradition says you have to own some of it, and as someone who doesn’t shake his fist at clouds, you don’t argue.
But why’s gold doing so well right now? Well, one explanation is that the world is in fact going to hell in a handbasket. Another says the rally’s a reflection of rampant ambiguity around trade. As discussed in the latest Weekly, Donald Trump has single-handedly pushed up the most widely-cited gauge of global economic policy uncertainty by engineering an explosive bull market in tariff-related news stories.
The figure above shows the global EPU – the “headline” EPU gauge, if you will. If you read the above-mentioned Weekly, you know that a look under the hood at the US-specific, categorical EPU subindexes reveals an off-the-charts spike in a news-based gauge of trade policy uncertainty, where “off the charts” means that on one interpretation, Trump’s more adept at generating trade headlines than Osama Bin Laden was at generating national security headlines in 2001 and better at ginning up media coverage for his trade war than COVID was at compelling the media to write about healthcare in April of 2020.
If you ask BofA’s Michael Hartnett, it’s that explosion in policy uncertainty (and not just around trade, but around fiscal policy too) that’s in the driver’s seat for gold which, he noted, just saw its sixth-largest weekly inflow of the pandemic era at $2 billion, an influx which presumably helped push prices near $2,900.
It’s worth noting (if only for a chuckle) that some observers recently suggested Scott Bessent’s remarks about America’s balance sheet presage a write-up — i.e., a mark to market exercise — in the value of the country’s gold reserves. Such a move would create an overnight, on-paper windfall exceeding three-quarters of a trillion dollars. What it would accomplish beyond that isn’t clear, though.
Exactly nobody concerned about America’s fiscal trajectory’s going to be impressed by an absurd accounting gimmick, and it might actually backfire to the extent it’d prove, beyond a shadow of a doubt, that America isn’t serious about addressing fiscal concerns from the legislative side, which is the only place they can be addressed in a comprehensive, credible manner. Besides, $750 billion is a drop in the ocean vis-à-vis this particular problem (i.e., the “problem” — scare quote alert — of America’s debt and deficits).
As to the notion that such a maneuver could presage a sale of America’s gold stash to fund, say, a buyout of Greenland (which isn’t for sale) or interest-bearing foreign bonds (the purchase of which, in huge amounts, would drive the dollar lower, bolstering Trump’s trade war), I’d call the idea lunacy. For one thing, if the US wants to buy something in dollars, Congress can just authorize the creation of new dollars for the purchase. Hard money types hate that idea, but surely they hate the notion of squandering America’s physical gold stash on JGBs, CGBs, OATs, BTPs, bunds and gilts even more. And then there’s the small matter of execution: Presumably, America selling off its gold would be akin to Musk offloading Tesla shares in that the sale itself would push down prices.
A revaluation would (by definition) have a balance sheet impact at the Fed and Treasury, and if you want to subject yourself to a torturously tedious, wholly speculative, thought experiment, you can spend half an hour walking through the accounting identities. I’ll spare you that for now because, in a piece published last week on the subject, Bloomberg said the idea “isn’t under serious consideration” at The White House. The gold market, the linked article dryly remarked, “attracts its share of fringe ideas.”
All I’d say in closing is that “fringe ideas” have a receptive ear in Trump’s Oval Office.
A hefty portion of the volume on the buy side has been by foreign central banks, especially China. They noted how the US froze Russian US Dollar reserves and wish to keep some other sources of liquidy. To finance goods imports and such in a pinch.
SORRY H, You are wrong. There is gold demand – sure some is idiotic but some is industrial and some is fear driven. And there is a cost of production. Maybe gold has no ‘scare’ value in back country South Carolina but it does in thousands of places around the world. You are doing nothing other than identifying yourself as one of the coddled naive Americans . Trump is changing some people’s tunes, I hope it doesn’t change yours or mine. By the way gold saved a lot of lives in our Civil War. BUT As a floor trader, one of my favorite sayings was “we’d trade shit as long as it stuck to the wall.” We trade cyrpto and it doesn’t even exist. At least gold is shiny, and……
John, about half the time (read: most of the time), I can’t extract a coherent line of reasoning from your comments. This one’s a good example.
Musk promoting streaming the Fort Knox “audit”, hmmm
A nod to Rand Paul and all the MAGAlytes who believe that there actually is no gold held at Fort Knox.
And I thought all of you at the office were smart…if you only think of a bar of gold as a shiny doorstop then consider buying the mining stocks. The best gold producer in the world, Agnico Eagle Mines is up 100% over the last year. Southern Cross Gold 232%. Orla Mining 100%. Discovery Silver 146%. They are speeding ahead of Tesla %78 and have a better view of reality than Meta 55%.
I’ll write back in a year with a recap to prove my point.
Miners have always been a popular way to invest in gold, That started back when US citizens were proscribed from owning physical bullion. In more recent times, they are seen as a high-octane derivative play on the metal. Especially the “junior” miners.
A word to the newbies – be sure to find out how much each miner as pre-sold forward, That’s often a requirement for loans or other borrowings. Try not to learn the hard way that miner has already sold 75% or more of a year’s projected output at much lower prices!
Mining stocks are highly speculative, and so is physical silver for that matter.
This may seem silly, but I’m 80, feeling old and hope I won’t be back to read the update.
That’s just great. I’ve spent the afternoon trying to help or at least console a friend whose world is imploding on itself. And now I read this! Don’t you give a damn about ME Lucky One??
With your wife already gone, who can argue with you?
It does suck when you hit an age when it hits you that it’s all downhill from there, doesn’t it? Some fight it, some accept it.
I’ll refrain from saying “hang in there my online friend” and give you a respectful nod instead.
…that makes one of us, Mr. lucky…after the depression of the election set in about a week or so afterwards, I realized and started the process of reevaluating and transforming how I planned to go about living, persevering,etc…it’s still a process…wholehearted encouragement to you and yours…I just hope you don’t have to cut out your enjoyment of red meat, but I worry about the risks with food inspection likely being gutted in order to pay off the bitter billionaires …
I have owned some gold since the 1990’s when it was around $300 an ounce. While it can serve as a hedge against inflation, it is not a good investment. It earns no interest, pays no dividends, and you pay a premium whenever you buy or sell it (meaning they clip you going both ways). In the mean time you must pay to store it somewhere like a safe deposit box. When you buy it at $300 an ounce, and sell it for over $2,900, it sounds good, but keep in mind it took thirty-years to get there. (Think of what you could have made with Apple stock during that same span.)
After the Great Depression, and WWII, owning gold likely made more sense. My grandfather never trusted banks or the market after The Great Depression. Modern prices tend to rise during periods of inflation, dollar weakness, and whenever “preppers” sense impending doom. (Gold had a nice run in the late 70’s-early 80’s for example.) Of course when prices rise, gold gets more attention, and “gold bugs” get excited about the chance to cash-in their some of their long held assets.
Yeah, and I like that I essentially told everyone I keep 8%-10% of my assets in gold (the implication from the article was 10%, but when it drifts up past 9% I trim it or rebalance), and the takeaway from some readers was, “H hates gold because he made a joke or two about it.”
How many readers, I wonder, have 8%-10% of their assets in gold? I mean, some, probably. But I bet not most.
This reminds me of 2021 when I was writing a ton on Web3 and DeFi and I’d get passersby chiding me for being a Luddite, when I’d just spent three months and tens of thousands of dollars on crypto and NFTs.
It’s true that I have a snarky view of gold, crypto and all sorts of other assets that aren’t equities and fixed income, but I own some of pretty much everything. Hell, I even had a comic book collection for the longest time, and I held onto an unopened, factory-sealed box of 1992 Marvel Masterpiece trading cards foreeeever. They never ended up being worth much, but dammit, those were some awesome cards.
H-Man, Occam’s razor suggests that to “hell in a handbasket” is the best explanation for the rise in gold. Sorta like an emergency parachute.
Sell gold into the market slowly and use the dollars to refill the strategic oil reserve, firming up crude prices and encouraging more exploration and drilling. Ought to help in the midterm elections. Surely someone is thinking this.
I get where gold is rising because of Trump uncertainty, hell in a handbasket, etc. but why has volatility not moved up meaningfully?
I have a nice folder of worthless mining stock certificates that I inherited from my grandfather. He and his dad had a small brokerage trading on the Amex until they went bust in 1933. My favorite is “The Great Belcher and Bullwacker Mining Company.
For those who have gold (I was trying for 50k once when it was at $1200 but I couldn’t get anyone to sell it to me for a decent price so I stopped. I once had fellow C-suite executive. He as hooked on collecting, anything with fluctuating value. Gold coins were a special goal. This guy was the operating VP for our family business and knew ever worker in our factory. One rainy Sunday in 1973 he gets a call from one of his workers who said he had a big money problem and he had some gold. No body wanted his gold (at that time selling for just over $100 an oz. He told my co-worker he knew he collected coins and would he buy some of it. My friend asked how many coins he had and the guy said he had 100 1 oz coins. My friend said he didn’t have enough cash, how much do you want for them. The factory worker said these is $20 each so I need $2000 for all of them. My friend gagged and ask if the guy knew they worth a lot more. They guy said, maybe but the guy I owe wants cold hard cash, so I need the $2k. My friend said OK, I got enough, meet me in the parking lot at the plant in an hour. The guy brought a sack of 105 gold coins and got his cash. My friend gave him a coin for a souvenir. and went home with 20k in gold which was up 60% the next year. With gold, sometimes you eat the bar and sometimes the bear eats you. True story. Never was my kind of luck.