Gold has been behaving more like a crypto currency than a stable tier-one asset over the last few years, and especially in the last few weeks as Trump’s tariff pantomime has unfolded.
Soaring gold price
The precious metal passed a major milestone of $3,000 USD per ounce (around £2,320 GBP) in mid-March and has since powered on to pass $3,500 an ounce.
So what are the key drivers of this rally?
Gold has been a stable store of value over the years. Despite some major spikes and dips, its price denominated in USD has gone up and to the right.
‘Gold is money, nothing else’
Buying and vaulting the yellow metal has not necessarily been a way of dramatically increasing one’s wealth, but rather a solid strategy to ensure wealth preservation. In 1912, JP Morgan famously testified to Congress roughly one year before the Federal Reserve was passed into US legislation that “gold is money, nothing else”, – suggesting everything else was credit.
Credit is an issuance of debt – the dollar being one such financial instrument. Ultimately, the debt created has to be paid back to the issuer. Sticking with it being measured in USD, this would be the Federal Reserve, which buys government bonds created by the Treasury in return for paper dollars.
The Fed is compensated by applying interest payments, which gives further upward impetus to the inflationary nature of the debt-based system.
Every time the Fed increases the dollars in circulation, more money chases fewer goods, inflating the prices of those goods and commodities. The more money printed, the further away the dollar becomes from anything close to being backed by the amount of gold the promissory note originally represented. And so the cycle continues.
$36 trillion debt
With the US debt clock surpassing $36 trillion, a revaluation of gold by the US Treasury could definitely take some of the pressure off by allowing the debt to flow into physical gold.
But with some experts saying there will be a revaluation and others saying there may be a temporary collapse, investors of all stripes will be looking to profit in the short-term paper gold markets and preserve wealth by holding the physical.
NOTE: This is not investment advice – just this columnist’s view.
