Gold’s having a moment.
Spot prices cleared $4,000 on Wednesday, green-lighting another round of mostly superfluous coverage across the financial media. Tuesday’s gold articles, which were just repurposed versions of Monday’s gold articles, will be repurposed again for the $4,000 “milestone.”
You’ll get the same analysis. You should be able to recite the boilerplate copy from memory. It goes as follows. Investors have piled into bullion given gold’s safe harbor appeal amid geopolitical angst, equity bubble worries and currency debasement concerns tied to the appearance of fiscal profligacy across developed economies, where political dysfunction’s pervasive.
At the same time, Donald Trump’s encroachments on US monetary policy and now the specter of a return to something like Abenomics in Japan, are another excuse for bullion-buying, as are rate cuts (see the RBNZ’s 50bps move on Wednesday).
You get it. I hope. Because God knows human versions of ChatGPT have recycled some version of that spiel dozens upon dozens of times during the parabolic phase of a rally that now finds gold on track for its best year since Jimmy Carter. It’s up eight weeks in a row and 10 in 11. Three months in a row and nine in 10. And 125% (give or take) since the beginning of 2023.
There’s a fun chart you might’ve seen this week. Someone rolls it out every time gold’s running higher. The implication’s always the same and it’s always ridiculous: You should’ve followed the Scrooge McDuck asset allocation strategy. That is: A 100/0/0/0 portfolio. Everything in gold and nothing in stocks, bonds or cash.
I’ve never met anyone who actually believed that’s a viable investment strategy, let alone a good one. Anyone who tells you a majority of their wealth’s tied up in gold isn’t necessarily a liar, but they are necessarily a silly person for a couple of obvious reasons.
First, gold’s not “a haven.” It’s a speculative asset by its very nature. Because it has no internal rate of return, the only way to profit from it (unless you’re using it to collateralize loans you then pyramid into other, income-generating investments) is to sell it to someone willing to pay more for it than you did. That’s a speculative asset and no one with any sense about them puts 100% of their portfolio in a speculative asset.
Second, gold’s useless as an apocalypse hedge. Utterly useless. I saw someone on “X” yesterday compare it to a doomsday lifeboat. A lifeboat made of solid gold would sink immediately, and that’s a great metaphor for how useless gold would be in a Mad Max scenario.
The fact that gold’s “held its value” over centuries and millennia isn’t a function of gold’s intrinsic “worth” (it’s a fucking rock, folks). Rather, it’s a story about human behavior and at every turn. We’re fascinated by shiny objects, we’re avaricious, we dilute and devalue the units of account we issue as a matter of course and expediency. And so on.
Zooming back in on 2025, I’m not sure how much weight to put on the argument that attributes gold’s furious run to Fed independence concerns. That’s part of it, I suppose, but I’d caution against ascribing too much in the way of causality.
Yes, inflows were robust in August and September as Trump’s assault on the Fed Board crescendoed, but I think this has morphed into a momentum trade. The RSI’s damn near 90. People (algos) are chasing this higher and adding fuel to the fire.
As the figure below shows, it’s certainly tempting to cite the Lisa Cook drama as a catalyst. The most recent leg higher started right around the time FHFA chief Bill Pulte went after Cook.
“There are no coincidences,” as the paranoid old saying goes, but to reiterate: I’m wary of putting too much weight on the Cook drama specifically when it comes to explaining gold’s run up to and through $4,000, even as I’m the first person to say that Fed indepedence concerns more broadly are a contributor to this year’s remarkable performance.
Gold’s an asset class unto itself, and notwithstanding periods where the correlation seems broken, it’s an inverse real yields play. 10-year reals in the US were 1.94% on August 20, when Pulte made it clear the Trump administration intended to oust Cook from the Fed Board. 10-year reals were 1.80% or so on Wednesday morning. A 14bps move in 10-year reals over eight weeks does not a justification for a 20% rally in an entire asset class make.
So yes, it’s obviously true that “a pliant Fed that would lower rates and spur higher inflation could set up a Goldilocks situation for gold,” as Bloomberg put it on Wednesday. But we’re in the manic phase of the rally now. Traders, both human and otherwise, are chasing gold higher. It beggars belief that the fundamental case for gold is improving by the hour, which is what some of this week’s media coverage would have you believe.
Ray Dalio got this right on Tuesday. Gold, he told Lisa Abramowicz, is an “excellent” portfolio diversifier. “If you were to look at just from the strategic asset allocation mix perspective, you would probably have as the optimal mix something like 15% of your portfolio.” We can debate that percentage, but my go-to line on gold has always (always) been the same in these pages: It’s a good portfolio diversifier. That’s the only bull case you’ll ever need, or the only one I’ve ever needed anyway.
What’s even more ironic is that people treat it as a doomsday hedge, yet hold it in a brokerage account through a ticker that merely claims there’s gold stored somewhere securely. Can’t make this stuff up.
I was too old to watch Duck Tales after coming home from school but I did anyway.
Silver, platinum and palladium have also gone parabolic over the past 6 months. I agree that liquor, canned goods, cigarettes, guns, ammunition and snicker bars are more valuable post apocalypse but precious metals pre-apocalypse sure seems like a good bet.
Add insulin, baby formula to the post-apocalypse list.
The move has taken some portfolios to 8% gold, I’m cutting those back.
Up $62 this morning. To the moon, Alice!
We know Trump has added $100 mil in treasuries to his holdings and has a bunch of bitcoin to go with his real estate. So how much gold do you suppose the has?
Approximately one Fort Knox worth.
Funny, but that is also a frightening thought.
My enthusiasm is tempered by a related risk. What happens to the price of gold if the Bessent Boys decide to issue bonds backed by gold in Fort Knox? The immediate bullion market probably would be to sell the metal. But the impact would probably be lessened if the bonds were not redeemable into gold.
Maybe they would trade like convertible bonds where funds routinely buy the convertible bond and run active hedges by shorting the stocks as prices of the underlying stocks move, therefor constantly changing the required hedge short ratios.
Stupid. On further thought, I’d wager that the Bessent Boys have already thought about or put into motion the issuance of “Stable Coins” with each token backed by an ounce of gold held in Fort Knox. It’s interesting to ponder how such a thing would be structured. Could they be converted into USD or physical gold?
I think he has already used that to decorate the Oval Office.
What happened to the great Fort Knox audit by Trump and Bessent?
I always thought “the plan” (besides outright theft) was to mark our gold reserves to market and produce a phony windfall for Trump to exploit in his budget shenanigans.
Yes, so a stable coin or gold-backed bond would make sense versus just dumping some gold on the market. There are still people in “the base” who would like to see us go back to the gold standard to enforce fiscal discipline rather than use it to fund more deficit spending. But one never knows these days.
I am up about 1,300% on some gold I bought in 1999. That’s 26-years of no interest, no dividends, and a $75 a-year fee for a safe deposit box to store it in. Since then, we have witnessed Y2K, the DotCom Bubble, 9/11, separate wars in Iraq and Afghanistan, the GFC, Covid, two (failed) impeachment attempts, and the January 6th Insurrection. Not once have I felt compelled to “cash out” in order to secure “safe passage” somewhere, nor have I needed it to buy rationed goods on the black market (at least not yet). Gold at $4,000 an ounce? I’ll pass.
I’m sure hedge funds have gone all in with leverage over the past 9-12 months. When we get a sharp market drawdown wouldn’t be surprised to see gold positively correlated in the short term with forced unwinds. But what do I know, I’m just a caveman!
“When we get a sharp market drawdown wouldn’t be surprised to see gold positively correlated in the short term with forced unwinds.”
Yes, that. That’s it right there.
I forget where to check, but if they were using futures to lever up wouldn’t it show up in the open interest reports? Or don’t they issue them anymore?
Instead, I suppose they might get exposure via structured products or options. The sellers would be doing the hedge buying in the market, perhaps making it less concentrated looking. For large specs, that’s a desirable thing.