September 13, 2025

I hate to be “that guy.” The guy quoting gold prices and complaining about budgets and deficits on the way to intimating that the money’s worthless.

And, as any longtime reader will attest, I’m definitively not that guy.

However, I have spoken over the years about what I call a “laugh threshold” beyond which governments risk a loss of public confidence in the nation’s unit of account.

The laugh threshold’s a theoretical construct. I can’t tell you where it is for any given country, nor can I make any sort of checklist enumerating steps on the way to the danger zone. This is complicated by the obfuscatory nature of programs like QE which, whatever they’re good for, look suspiciously like debt monetization to people who bother to understand the basics.

While I can’t tell you when, precisely, the electorate in developed economies will start to ask existential questions about the viability of the system (and here I mean the typical voter, not die hard gold bugs and Bitcoin purists who ask those sorts of questions every day), what I can say is that the loss of institutional credibility, acute legislative dysfunction and the breakdown of civil society are pushing us closer.

Although many of the world’s small, highly-advanced economies still boast stable governments seen as generally credible by the body politic, I dare say most of the major Western powers (and remember: “Western” isn’t necessarily a geographic term in this context) don’t. Certainly, US voters don’t have much faith in their institutions anymore, France is in the throes of a seemingly interminable political crisis (with very serious ramifications for the finances of a non-monetary sovereign), the UK’s a basket case (just not as much of one as the US), Japan’s unstable (or as unstable as post-War Japan can be), the same’s true of Germany and on and on.

Even Canada’s grappling with what, for Canada, counts as divisive politics, although Donald Trump’s threat to annex the nation did wonders to rally Canadians around the flag. (In that sense, at least, Trump really is a great unifier.)

Institutional credibility crises aren’t always accompanied by fiscal emergencies, nor vice versa, but… well, suffice to say it’s not a coincidence that many of the world’s major economies are struggling with both in 2025. Those struggles are reflected in steeper yield curves across developed markets. (As a quick aside, we’ve seen some steepener unwinds in recent sessions in and around a spate of poor US labor market data, but that obviously doesn’t change the broader narrative.)

Of course, there are idiosyncrasies to take take account of. In Germany, for example, a stepped-up commitment to defense spending is a big part of the story at the long-end of the country’s sovereign curve, but that too is related to the rolling crisis motif: Berlin, the global bastion of fiscal rectitude, is prepared to loosen the purse strings in order to safeguard its territorial sovereignty.

To me, the figure below says more about all of this than perhaps any other chart you might be inclined to draw.

The chart, from BMO’s rates team, traces the evolution of 10-year US yields — which is to say the benchmark of all benchmarks — since the onset of the last half-dozen Fed rate-cutting cycles.

See anything peculiar? “The current cycle marks the only normalization campaign of the last six in which 10-year yields haven’t closed below the departure point of the first cut at some point during the cycle,” BMO’s Ian Lyngen remarked. Even with the recent rates rally, 10-year US yields are 30bps higher than when the Fed cut this time last year. At one point (in January), they were 100bps higher.

Whatever happens from here — and without wanting to delve into the dark realm of domestic US politics at yet another delicate juncture — that’s a reflection of America’s overlapping institutional and fiscal credibility crises and so too is gold’s monumental rally.

I don’t like — let alone love — gold as an “investment.” Mostly because it isn’t one. An investment I mean. It has no internal rate of return. But speculative though it is (and in some sense, the scope of gold’s two-year rally only serves to underscore the speculative characterization), “barbarous” bullion’s up almost 40% in 2025 on top of 27% in 2024.

Autumn of 2022 marked “peak Fed hawks,” if not peak Fed funds. That’s when the Committee completed a succession of 75bps rate hikes. Gold was $1,630 give or take when the Fed delivered the fourth such “triple-stack” (if you like). This week, gold nearly reached $3,700.

As the figure shows (and I realize most of you have seen the chart more times than you probably care to this week), gold also hit a new record in inflation-adjusted terms.

Capital allocators “are entering a period where they are justifiably concerned about the levels of both deficit spending, as well as questioning central banks’ priorities and willingness to truly fight inflation,” as one PM told Bloomberg.

Much as it pains me: That’s unequivocally true. Whatever you want to say about the source of demand for gold, it’s responding in no small part to the perception of institutional and, if we’re honest, societal breakdown across the developed world — across hard currency-issuing economies.

If the US (the dollar), the UK (the pound), Germany and France (the euro) and Japan (the yen) all suffer from acute credibility crises simultaneously, what are people supposed to hold? The loonie? The aussie? Maybe. The franc, sure. Bitcoin for the bold. But really, just gold.

As the figure above from BofA (tallying EPFR’s flows data) shows, gold funds saw their fourth-largest weekly influx on record this past week, and the only three larger weeks all came quite recently.

Caveats are in order, not least of which is that gold’s overbought (~80 RSI). And as I never tire of reminding readers regardless of how irritable this makes the gold fans, you can’t do anything with gold. You can’t eat it, burn it nor live in it. And this is the 21st century — you can’t buy anything with it directly either, or at least not expediently, in the normal course of regular people’s business. (Can you buy a Lamborghini in physical gold? Sure. Maybe. Probably. Can you buy a Honda Civic with physical gold? No. Certainly not.)

The usual provisos aside, bullion’s having a moment. And BofA’s Michael Hartnett summed it up best. “Gold’s a hedge against anarchy,” he wrote. “While the gold rally has flipped from a quiet bull to a noisy bull, gold will rise further.”

[Editor’s note: In response to multiple reader requests over the past two years, I’ll be opening up the Weeklies to comments from here on out. With more than 90% of subscribers now on the subscription tier which receives the Weekly, and with the rest set to convert by year-end, there’s no longer a tier-based rationale for sequestering the Weeklies away in an obscure section of the site. In addition, it’s come to my attention that when sent directly to inboxes, in full, the Weeklies tend to be forwarded. I don’t mind a little of that, but based on anecdotal evidence, it’s becoming too pervasive. So from now on — in consideration of those factors — I’ll be posting the Weekly directly to the front page of the site on Saturdays. This approach will have the added benefit of creating a Weekly archive that you’ll be able to access directly on the site, which is something else readers have long requested.]