Posted:October 16, 2025
Categories: Asset Allocation, Central Bank, Currencies, Federal Reserve, Fiat Currency, Gold, US Dollar
“Remember what we’re looking at. Gold is a currency. It is still, by all evidence, a premier currency that no fiat currency, including the dollar, can match.” Alan Greenspan, former Chairman of the Federal Reserve
Regular readers of this newsletter recognize that I am a big believer in gold. And anyone who’s read my book can see this, too. My editor commented in her first review of the manuscript that the theme of gold was most evident in the book. Frankly, this scared me during the editing process, as I did not intend for gold to be one of the book’s primary themes. As it turned out, given the book’s historical nature, gold emerged as a natural theme, one in which I embraced. When anyone studies the history of money, gold lurks in the shadows, beckoning to be discussed.
I was born in 1981, ten years after President Nixon closed the gold window, marking the end of the US dollar’s convertibility to gold, the Bretton Woods system, and the beginning of our current era of free-floating fiat currencies. Our financialized system is now an extensive, interwoven system of mostly debt and derivative instruments. I did not grow up using gold coins as money. All I knew was that this green piece of paper was money. Further, my economic textbooks, research papers, a college degree in finance, and a CFP® designation didn’t teach me too much about gold. Sure, I recognized its importance as a portfolio diversifier some years ago. However, it wasn’t until I spent countless hours studying monetary history that I came to appreciate the importance of gold, both as a portfolio diversifier and a world currency.
In investing, gold is one of the most controversial assets and topics. Some feel it has no place in a portfolio, calling those who do “gold bugs.” Others won’t touch anything other than gold or silver. At the end of the day, each investor must make up their own mind. In no way is this a recommendation for any reader to buy or not buy gold. Given its unique nature, it’s important to understand gold’s history, characteristics, and monetary use before making a decision. Finally, I urge readers to remember that consistent savings in a properly diversified portfolio (cash, stocks, bonds, gold, real estate, etc.) is a proven strategy in preserving and growing wealth over time. For the right investor, gold can absolutely hold a slice of that diversified portfolio.
Gold’s Performance
First, let’s discuss performance. Gold has been on an absolute tear of late. In US dollar terms, gold is up almost 60% alone in 2025, rising from around $2,600 to around $4,200 per troy ounce (see Figure 1). Long-term, it’s increased by around 1,400%, a whopping 14x since 2000 (see Figure 2). It’s not always been in a straight line, but it’s been a significant rise since many central banks stopped selling gold bullion around the turn of the century. For sure, momentum has carried the price this year, so a pullback and/or a pause would be natural.
Figure 1: Gold Price, Year over Year as of 10/15/2025
Source: TradingView
Figure 2: Gold Price, 2000–2025
Five Reasons for Gold’s Recent Surge
Now, let’s discuss five reasons why gold has risen:
Central Bank Demand and Diversification
Recall that a country’s central bank reserves, such as the Federal Reserve in the United States, are akin to a nation’s savings account. Central banks typically hold a mix of national currencies, bonds, gold, and increasingly stocks. Central banks mostly require their assets to be very liquid, that is, easy to sell. As a global currency, gold is an asset with a worldwide market and is, quite possibly, the most liquid asset in existence.
Central banks globally are functioning as massive, price-insensitive buyers of gold. Gold now accounts for almost 20% of all central banks’ reserve holdings, recently surpassing the Euro.1 In the past three years alone, central banks have purchased nearly one-third of all the gold mined worldwide, as seen in Figure 3. Therefore, central banks are putting a floor under the gold price.
Figure 3: Central Bank Gold Purchases (Percent Yearly Gold Mined), 2016–2024
Source: World Gold Council2
Ever since gold was detached from the US dollar in 1971, central banks have purchased US dollar assets, specifically US Treasuries, to replace gold as a store of wealth. This capital rotation began to unwind following the Global Financial Crisis of 2008/2009. This shift accelerated significantly after 2022.
Central banks are now buying gold hand over fist as a hedge against geopolitical risk and sanctions, especially following the 2022 freeze on Russian dollar reserve assets. Gold is viewed as a neutral asset that cannot be sanctioned. Therefore, gold has begun replacing US Treasuries as the preferred reserve asset, particularly for non-Western nations.
Fiscal Issues and High Government Debt Levels
Government debt levels have risen substantially during this century. Markets are beginning to recognize that global fiscal sustainability is deteriorating and that the risk of debt overhangs being inflated away is growing. Simply put, there is too much debt. It will never be repaid. Instead, it will most likely be inflated away. This puts upward pressure on government bond yields (interest rates) as some market participants shift portions of their asset allocations from debt to real assets, including gold.
Monetary Inflation and Fiat Currency Debasement
Monetary inflation is the depreciation of paper currency. Put another way, the more a government prints paper money and increases the supply of money (currency) and credit (debt), the more the currency depreciates. This is the definition of currency risk. All currencies are depreciated against debt as it allows a government to repay and/or rollover new debt more easily. Gold acts as a hedge against currency debasement and debt monetization. Investors use gold as a store of value to protect against the ongoing erosion of currency purchasing power. Gold is considered the traditional monetary hedge par excellence against this decline in the value of paper money, and it is a significant reason gold is rising.
Fiat currencies (dollar, euro, yen) move relative to one another. As nations fight to reduce their indebtedness, they engage in a competitive race to devalue their currencies against one another. As a global currency that has never gone to zero, all currencies are also being debased against gold.
Think of it this way. When the price of gold rises (e.g., by 10% in dollars), people often view it as a rise in gold’s price, rather than a fall in the dollar’s value. This distorted perspective, common since the world moved off the gold standard in 1971, obscures the reality that paper money is constantly losing value. Our system is an inflationary system through and through. This is very evident in the Japanese Yen (see Figure 4). An ounce of gold was roughly 70,000 yen in 2006. Today, one ounce of gold is 635,000 yen.
Figure 4: Gold/Yen, 2006–2025
Rising debt levels necessitate increased money printing (liquidity) to be refinanced, forcing monetary inflation. I dive into this topic in depth in Chapter 20 of my book. To wit:
“To prove this point, consider the following figure. The dark line represents the growth of US government debt since 1995. Debt has grown from $4.6 trillion to $36 trillion, a cumulative increase of about 650 percent. The gray line shows the price of gold in US dollars over that same time frame. Gold has increased from roughly $400 to $2,800 per ounce, rising in tandem with the growth of government debt.”3
Figure 5: US Government Debt and Gold, 1995–2024
Source: Author
China’s Monetary Strategy
When discussing our current monetary system, the power of the Chinese government must be at the forefront, along with that of the US Federal Reserve. These two powerhouses move markets. China moves commodity markets, while the US Federal Reserve moves traditional financial markets. As it relates to gold, China is a major driver of its upward movement, both through state policy and retail demand. No entity outside the Chinese government truly knows how much gold it holds.
China has experienced a massive real estate bubble and subsequent bust over the past several years. This deflationary shock has necessitated enormous money printing and liquidity injections by the People’s Bank of China (PBoC). China has been focusing on devaluing its currency, the Yuan, relative to real assets like gold, to alleviate its significant debt-deflation burden. The gold price in yuan has more than doubled since early 2022. Further, Chinese citizens have been encouraged by their government to buy gold for over 20 years, making them a significant source of demand.
China is also pairing its digital yuan with gold to de-dollarize commodity trade, moving slowly away from using the US dollar in transactions. They’re doing this by trading goods with other countries and settling net balances in gold. This dynamic, in which commodities like oil surpluses bid up gold prices, puts pressure on the physical gold market, driving prices higher.
One could argue that, along with central bank buying, the global East has been the primary driver of the gold price.
US Monetary Policy
While the US dollar remains robust vs. other fiat currencies, it has weakened this year amid US tariff policies. Gold is rising amid a weaker US dollar and range-bound yields, coupled with market expectations of future interest rate cuts by the Federal Reserve. The increasing consensus around a dovish (easy) Fed is beneficial for the price of the yellow metal.
Historically, gold typically rises when real interest rates (nominal rates minus inflation) are low and falling. The reason is that gold provides a better store of value when interest rates are low or negative (the cost of holding gold is lower). Although real rates have recently increased, gold prices have surged anyway, suggesting that the opportunity cost of not holding gold (given debasement fears) far outweighs the loss of interest receipts from holding cash and bonds, especially since late 2022. A visual representation of this is shown in Figure 6 below. This chart plots gold (on the right) alongside the real (after inflation) 10-year US Treasury rate (on the left, inverted, black line). These two were historically correlated (moving higher and lower together). However, the circled area around 2022 marked the divergence, seeing gold rise along with the level of real interest rates.
Figure 6: Gold and Real Rates
Conclusion
Gold is widely viewed as an insurance policy. In other words, it acts as a safe haven currency and store of value against financial, economic, and geopolitical upheaval. Gold is an essential asset for preserving wealth and protecting against uncertainty and crisis, due to its inherent scarcity, lack of counterparty risk, historical stability, and growing importance as a strategic reserve asset for global monetary authorities. It appears gold is no longer “a barbarous relic,” as it has reinserted itself into the monetary system. Truth be told, it was always there, begging to be used to solve the endless erosion of fiat currencies.
I leave you with a quote from the late Jim Sinclair, written in 2009, when gold hovered around $1,000.
“Government destruction of personal liberty is a sign of institutional insecurity. This lowers confidence, which is why gold is trading higher. That is why it will continue to trade higher. The gold price is a monitor of the success of the Rule of Law in society. That is why its rise is no cause for celebration. Eventually, gold will be used to help restore confidence in a confidence-shattered financial system, through its re-entry into the monetary system. That is its historic role. Until that genuine confidence in our societies is restored, gold will not end its move to ever higher heights.”4
References
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