Gold. It’s had a helluva run. Croesus was really onto something.
Typically, you have to elaborate or otherwise back up your claim when you employ the word “unprecedented,” which was bandied about this week to describe the current rally in bullion. But this is financial “journalism” (scare quotes), which means you’re free to toss around superlatives willy-nilly.
I’ll forgive the liberal use of hyperbole in this context. Because the rally really is quite something. Bullion hit still another record on Tuesday near $3,800.
As the figure shows, the most recent leg higher is basically a 90-degree angle. And gold’s doubled over two years.
I suppose you don’t need an internal rate of return when the value of the asset’s appreciating on that sort of trajectory. But the usual caveat still applies: Gold’s not actually worth anything. We just think it is.
The good news for gold bugs is that what we think is all that matters as it relates to money and quasi-money. Gold, silver and pieces of paper with presidents printed on them are stores of value because we believe they are. As long as enough people believe it, it’s “true.” It’s a Peter Pan kind of dynamic: As long as you believe you can fly, you can. (I think the story says you need fairy dust too, but I’ll leave that to the Scottish literature experts among you.)
In addition to underscoring the impressive scope of gold’s three-year rally, the simple chart above also serves as a reminder of why gold can’t be a national currency in modernity: You can’t have money that loses 27% of its value in a single year (as gold did in 2013) nor can you have a system based on money that doubles in two years. You’d subject the economy to wild, alternating bouts of inflation and deflation, and because gold’s “outside money” there wouldn’t be anything anyone could do to smooth out the brutal cyclicality.
Editorializing around the latest record high for gold, Bloomberg on Tuesday thanked — checks notes — itself. Bloomberg thanked Bloomberg. “The rally gained fresh momentum after Bloomberg reported that the PBoC is looking to be a custodian of sovereign reserves, courting friendly countries to buy bullion and store it within its borders,” a market wrap read, linking to what the outlet described as an “exclusive” report.
That should be — but depending on the country won’t be — a non-starter. Simply put: If you think the US Treasury acted capriciously in spearheading a push to freeze Russia’s G7 claims in response to Vladimir Putin’s Ukraine fiasco, just wait until your gold’s locked up in a Chinese vault and your citizenry elects a leader seen in Beijing as antithetical to the Party’s program.
The idea’s part and parcel of China’s slow-moving push to establish itself as an all-purpose alternative to the Western-led system that’s presided over international finance and development for most of the post-War period. The problem — and I’m chuckling as I write this — is that China’s a totalitarian country run by a steely-eyed dictator who dresses up like Mao Zedong for special occasions. Giving your gold over to him for safe keeping might make sense if you too are a dictator who wears costumes to military parades, but if not, not.
I’m (obviously) a critic of Western foreign policy and I can be quite abrasive in that regard. But notwithstanding the shifting nature of American governance, and setting aside the disconcerting macro-fiscal trajectory along which the UK’s traveling, you don’t have to worry too much about custodial arrangements with New York and London unless you plan on doing something totally crazy like, say, starting a land war in Europe.
I don’t pretend to know how much traction this idea of Xi’s will get, but what I do know is that Beijing’s pretensions to selfless benevolence (always couched in language which suggests the Party’s initiatives are motivated purely by a principled desire to rebalance the world towards a multipolarity in the interest of fairness) are disingenuous on honest days. On all the other days, they’re exploitative and conspiratorial.
So… no. Maybe don’t let Xi put your gold in a PBoC-controlled warehouse at the Shanghai Gold Exchange. Just keep it in your basement next to the water purification tablets, the ammonia inhalants, the full-face respirators and the freeze-dried beef stroganoff.
I still can’t get my head around owning gold. First of all, several of my individual tech stock holdings have done better than gold, not only YTD, but over the past 24 months. And, it makes more sense (to me) to allocate more to an individual stock (that makes a profit and generates lots of cash flow) than to gold.
Assuming someone wanted to take their physical gold to China for storage- good luck with that. Definitely need a private plane to get it there. Carrying over $10,000 worth, domestically or internationally, requires one to declare it with TSA. The only reason I know this is because after my father passed earlier this year, my brother and I emptied our father’s safe deposit box. He had gold in there- and the value exceeded the declaration limit. I called one of my old high school boyfriends (now a TSA agent), who advised me to sell the gold before I went through TSA. He said, “you don’t want to deal with that”.
My allocation to gold is usually zero, but every now and then is mid-high single digits. I see it as a temporary hedge for certain risks, not an “investment”.
Understood. Admittedly, I have never considered “hedging” with gold since I started investing for myself in around 2013. It does, seem, however, that the increase in the price of gold is not just because investors are hedging. More like gambling, as in: “this is quickly trending up, so I will jump aboard”. Especially, since I am guessing most are not taking physical possession.
Perhaps it is different now, but 15 years ago or so, I recall seeing a study trying to quantify how good commodities were as inflation hedge. The R² was remarkably low, But it turned out that gold had the highest correlation.
More recently some investors (not speculators) have been buying gold as a hedge against a falling dollar. How stupid is that?
It probably was 20 years ago. A few other geezers here might remember the wave of interest in two commodity indices, one from the CRB and the other from Bloomberg. They differed on how large a weighting they gave to oil and natural gas. Both funds suffered because they used futures contracts which had to be rolled over, most often losing money in the process.
The 27% loss our Dear Leader followed a hefty rally starting in 2009. That was partly triggered by Rick Santelli foaming at the mouth about how Obama was “debasing the US Dollar” and recommending gold as a hedge. We religiously watched him so we would not miss him getting a stroke on the air as he whipped himself into frenzy on that topic. He had a large following after he was credited with helping to launch and naming the Tea Party.
The human paradox: A shiny gold colored element, AU, in its purest form is worth $3,800/oz while O of which we require a pair of to exist is absolutely free.
Completely off topic but something I wanted to note because I’ve seen zero US new coverage of this:
“Jaguar Land Rover, a carmaker, said its factories in Britain would remain closed until October 1st after a cyber attack in August forced it to shut down its IT systems. The company, which is owned by Tata, an Indian conglomerate, has also suspended production at plants overseas, including in Brazil and Slovakia. The shutdown has cost JLR about £120m ($162m) in profit and £1.7bn in lost revenue, according to analysts.”
Gold is straight-up trading like Bitcoin now. Most are buying it in ETF form. From what I understand, each share of those ETF funds represents a specific, fractional interest in the gold held by the fund. Other gold funds invest in gold futures. Although more convenient, to my mind, that is not the same thing as actually “owning” gold.
John L,
Invest in precious metals miners like Agnico Eagle AEM or Pan American PAAS and double your money in a year.
Sea Turtle,
You should buy Kinross Gold KGCRF.
Dereck,
Gold is going up because the value of the dollar is going down losing 10% of its value YTD. You should try
Vizsla Silver VZLA.
Blognonymous,
Kingsgate Consolidated KSKGF should make you big bucks.
Troy,
You can own part of a gold mining company. Try Goliath Resources GOTRF or Sitka Gold SITKF, both junior miners not yet producing gold.
Heisenberg,
I’ll tip you my favorite, Southern Cross Gold SXGCF, AU:SX2. I’m hoping to 50X my money again with their new neighbor Golden Cross Resources ZCRMF, CA:AUX
Happy Trails.
“I’ll tip” all of you something: I’ve had a “plain” gold allocation of between 5% and 7% since I was 19 years old. It’ll stay between 5% and 7% until I’m between 5 feet and 7 feet under.
You got – this is the 1970s reborn. John Travolta too!
I think I’ve seen this algorithm somewhere before…
It is history. I lived that algoritm. Watergate was a bear, but Trump is a global tsunami.
Gold and other precious metal miners are very speculative investments. I lost money on Pan American Silver a few years back.
Pan American Silver is up 300% since Feb 2024. The best time to get back in is after the coming market decline. Silver could drop 30% along with the Market.
My dog’s name is Trouble.
Who is buying this gold? All the little guys. There are way over 150 central banks. Do they want to own U.S. governments paying almost nothing in a real sense and 100% dependent on Trump. The many pissant Central banks – as MAGA would have it – don’t deserve to be benefiaries of the interest payments like they are no longer beneficiaries of U.S. foreign aid. They FEAR Trump will pick them off. So, buy gold. Park it in the U.K. or Switzerland – or anywhere other than the U.S. The Mar a Lago accord is off the front burner but there are many MAGA types with sticky fingers and don’t care for foreigners.
Yep. The worries are not so are-fetched as they may sound to most readers.
Insiders reported that in 2018 in the midst of an earlier round of trade negotiations the president floated the idea that the US would simply stop paying coupons on US Treasuries held by China. Apparently Mnuchin and the other “adults in the room” were able to towel him down. The idea remained dormant until 2020 when GOP luminaries wanted to force China to reimburse us for the costs and damages to the US from the covid epidemic. For example, “Sen. Lindsey Graham, R-S.C., a close Trump ally, said on Fox News, “They should be paying us, not us paying China,” and expressed support for a suggestion from Sen. Marsha Blackburn, R-Tenn., that the U.S. should cancel its sovereign debt held by China.”
Then there were those financial measures Joe Biden took against Russia after their invasion of Ukraine, further weakening the reputation of safety of US Treasuries among foreign central banks.
BTW, serious preppers ridiculed above no longer trust London or Switzerland as safe places to store your gold bars out of sight of US authorities.