Gold Soars, but the Reason Isn't Clear

Daniel Bergman from MN posted 9 months ago:

I have been investing in gold, silver and miners for over two years. I can tell you my reasons for owning the precious metals. As you mentioned, currency debasement is certainly one reason. The official CPI rate grossly understates the real inflation rate. That can be compared to previous calculation methods used in the eighties. Or even just tracking prices on your own. Check out Shadow Stats. China has been accumulating gold for a couple of decades now. It produces its own gold that does not leave the country. Many central banks outside the west are also accumulating gold at an increasing rate. The reason is they are exchanging dollars for gold. Once the U.S. weaponized its bonds against Russia, many countries took notice and were not so keen on U.S. bonds any longer. The uncontrolled deficit spending and weaponized debt has resulted in lack of faith in the dollar and dollar debt instruments. The president himself has said he wants a lower dollar. The fact of the matter is that when faced with interest on a debt over 120% of GDP the government has no choice but to inflate away the debt or default. They will not choose default. It isn’t about making money, it’s about not losing what you have to increased inflation. We have been here before, but not with this extreme level of debt. A debt the world is far more reluctant to finance.

Barry from TX posted 9 months ago:

Charles, you and Daniel make a great tag team. I haven’t seen one this formidable since “Gorgeous George” and Buddy Rogers. Together, your collective reasons for the run on gold – I counted 14 -- knitted together the threads of the warp (tension) and weft (integration) of the reasons by market (1-5,14), geopolitical (6,7), economic (7,8,10,11,12), and political (9,13) forces across the landscape. I organized your reasons to align with the annual World Economic Forum (“Davos”) list of the Top 20 World issues that Klaus Schwab (no relation to Charles) has published for years, in case you want to see a comparative alignment of this list to estimate the degree of alignment, divergence, and longevity with this list and other opinion polls. I would have included other “usual suspect” polls, but there are so many pundits on what’s wrong with the world (compared to “what’s right” in the world) at any given time that generate the “warp and weft” of so many garments of many colors. This worked for Jacob, but most others usually fall far short of this famous source for predicting the future.

Barry from TX posted 9 months ago:

Note: I had never heard of the "Shadow Stats" website. This is what IT SAYS IT IS: "John Williams’ Shadow Government Statistics" is an electronic newsletter service that exposes and analyzes flaws in current U.S. government economic data and reporting, as well as in certain private-sector numbers, and provides an assessment of underlying economic and financial conditions, net of financial-market and political hype."

Daniel Bergman. from Mn posted 9 months ago:

Just to expand on a couple of things that have developed since I entered the metals market a couple of years ago. I may be just a crazy person living in the woods, but I now have some company: Bank of America's Recommendation on Gold Shift in Investment Strategy Bank of America has recently advised investors to consider increasing their allocation to gold in their portfolios. This recommendation comes as a response to the current economic climate, where traditional bonds are underperforming. The bank suggests that investors might benefit from holding 40% of their portfolio in gold instead of U.S. Treasuries. Reasons for the Recommendation Economic Uncertainty: With rising inflation and geopolitical tensions, gold is viewed as a safe-haven asset. Strong Demand: There has been a significant surge in investment demand for gold, with a reported 880% increase in gold exchange-traded fund (ETF) buying in September 2025. Performance: Gold prices have risen dramatically, with forecasts predicting prices could reach $5,000 per ounce by 2026, driven by continued strong demand. Implications for Investors Investors are encouraged to diversify their portfolios by including gold, especially in a high-valuation, low-yield environment. This shift reflects a broader trend where gold is increasingly seen as a more stable investment compared to traditional bonds, which have struggled in recent years. In summary, Bank of America's recommendation highlights the growing importance of gold as a strategic asset in investment portfolios amid ongoing economic challenges. That is one large influential bank that recently came out with the remodeled portfolio. But wait, there is more: Morgan Stanley CIO favors 60/20/20 portfolio strategy with gold as inflation hedge https://www.reuters.com/markets/wealth/morgan-stanley-cio-favors-602020-portfolio-strategy-with-gold-inflation-hedge-2025-09-16/ Basically, two rather influential banks are recommending holding rather large amounts of gold within your portfolio. In my previous post I said holding gold was more for wealth preservation than anything else. That doesn’t mean there is no money to be made with it. It is estimated that the average portfolio today has approximately one half of one percent of gold. Do you think a move to even ten percent average would move the price of gold? A twenty fold increase in an asset already in heavy demand across the world. What are the implications for the bond market? I believe we are moving into a commodity based bull market. Wouldn’t be the first one. Right or wrong it is hard to find a bad case for gold at this time.

Barry from TX posted 9 months ago:

Daniel, thanks for sharing the reputable sources and your organized, thoughtful analysis. #1 Advice from banks that are “too big to fail” to take on speculative risks does not amaze –or convince –me to follow their lead. #2 Before I would go in “whole hog” with 40% of my PF in “spec” gold, I would “Think in Bets” (per Annie Duke) and figure out exactly who is “the hog” and who is “the butcher” in this updated fable about the contemporary “3 little pigs" who are thinking about adding gold to diversify their portfolios -- BOA, MS, and AAIIers. . #3 This is how I estimate the conditional probabilities of the possible outcomes of being (a) making a “80% smart” choice and (b) STILL facing the REAL probability that is always on the table of still having “20% bad luck” despite having been “80% smart.” #4 “Too big to fail” banks occupy a much higher position in the investing food chain than this small fry AAIIer. #5 Banks with trillions ($1,000,000,000,000) in assets can speculate and rely on the very high probability that they will be able to get out of their position before the first WSJ article hits the streets, if they have the same 20% bad luck that we all might. #6 By comparison to piggies #1 and #2, AAII piggies have modest portfolios – estimated at $3,000,000 (3 million) on average. #7 If piggish AAIIers go “all in” on [gold] because they read the “the river” [the reasons in the article] as favorable and “the flop” card is in that “20% bad luck” -- they are betting the mortgage, the cars, food, and their medical insurance coverage. #8 They will very likely sell their 40% gold investment LAST at the LOWEST prices ... if they can sell at all. #9 BOA and MS each employ several hundred Ivy League MBAs, each armed with access to equally skilled analysts who have access to supercomputers (an AI?) and who are highly incentivized to “front run” the gold market and hedge their speculations by buying multiple reinsurance contracts (like Swiss Re and AIG in 2009) to spread their risk. #10 Who knows if the BOA and MS "we're bullish on gold" post is not a ploy to bring more suckers to buy/hedge their positions? #11 And if these same usual "toof big to fail" suspects” really screw up AGAIN -- like they did in 2008-2009, the Fed will bail these "Munificent 8" banks (including BCA and MS named here) designated as “too big to fail” … AGAIN ... and the FSOC will assist ALL of them in recovering their losses through the laws enacted after the 2009 fiasco … AGAIN. #12 The reasons enumerated in Charles’ article that outlined 14 “rationalizations” and “justifications” (depending on how you see them) many people might conclude that gold is the best way to hedge overvalued markets …. BUT THESE ARE THE VERY REASONS small AAIIers should make sure they are not being set up to be the pork course in the center of a bankers' table this Thanksgiving. #13 My experience is that … when “market elephants” get spooked and stampede, the little critters in the jungle get trampled (that would be us). #14 Ignore Buffet’s off-repeated aphorism and THINK THIS THROUGH like a “Level 3” contrarian; THINK BEYOND (Level 1) being “fearful” AND BEYOND (Level 2) being “greedy” and get to (Level 3) staying a “safe” course. #15 As Randy Newman's theme song for the TV show "Monk" says, “It’s a jungle out there. I could be wrong. But I don't think so." Stay safe. Stay the course.

Daniel Bergman from MN posted 9 months ago:

Thank you all for the thoughtful comments. My purpose was to add to Mr. Rotblut’s much appreciated thoughts on gold. Since I had already gone down that rabbit hole, I hoped it would enlighten members as to the logic behind it. I personally have 15% of my portfolio in gold. It started at 10% but since it has more than doubled it has increased the overall percentage. I have a larger percentage in silver. Different and some similar reasons for that. The question everyone has to ask is where do I invest my dollars in today’s market situation? Stocks. They could go up for another five years or collapse next week. They are largely overvalued and the dot.com bubble comes to mind. I own some in commodity related areas. Uranium, gold & silver miners, royalty companies and the hated oil companies which are very cheap now. These will go down with a stock market correction. I don’t think they will stay down long. Bonds. In a rising interest rate environment, which seems inevitable given our debt, I won’t go there. Too little upside, too much risk. Cash/ Money Market. Not a terrible option for the shorter term. Longer term you are unlikely to outpace inflation. Real estate. Real estate is local in the end, so where you live can be far different than national averages. Commercial real estate is dead. There is no market for it and I don’t see that changing in the foreseeable future. Banks will likely fail because of underwater commercial real estate loans. Residential real estate is already going down in many cities and predominantly on both coasts. I wouldn’t touch a REIT. Cryptocurrency. If I want to gamble I will go to Vegas. I can’t value it so I will not buy it. My thought process is a process of elimination on where to invest. I am a value investor. I stay in my lane on that. I don’t chase, I buy low and wait until my choice comes into favor. That’s obvious since nobody wants oil companies now. Nobody wanted Uranium companies either. They do now. Nobody wanted gold. They do now and that is just getting underway. Same for silver. As a group of “independent” investors I don’t expect everyone else to invest my way or in the things I do invest in. There are multiple ways to skin a cat. I just hope to shed some light on the thought process of owning precious metals at this point in time. It’s not for everyone. I hope we all have a prosperous year ahead.

Barry from TX posted 9 months ago:

Daniel, I went through the list of asset classes you shared with us. #1 I think you have all the asset classes covered on your BINGO card. #2 I subscribe to the AAII Sentiment Investing offering because it provides a weekly survey of around 30 or so indicators covering 14 categories. It's kind of a BINGO card for nerds. #3 After I finished reading the 15 pages of his week's analyses, I came away with a sense of "there's no place to hide" very similar to the emotions you expressed in your portfolio review. #4 Several historical indicators point to possible ways markets could (1) resolve current sentiment contradictions and tensions near-term, and (2) then historical analogues that have provided "windows" during similar past periods provide Bayesian (posterior) probabilities for recovered for almost 60% of the time within 1 year (but I consider those odds to be too close to a 50/50 coin flip), then they reconstituted their fundamentals unto longer-term bull markets going forward. #5 Daniel, don't let the current sentiment tensions we AAIIers have created with our strong opposing positions make you anxious to make any specific moves. You (we AAIIers) have a lot of options (that's, very, very good place to be right now) and the ambient "noisy" distractions will not go away quietly, but the good ol' AAII education has prepared us to weather the current temporary adversities. #6 I repeat, as Randy Newman's theme song for the TV show "Monk" said, “It’s a jungle out there. I could be wrong. But I don't think so." Stay safe. Regards.

Barry from TX posted 9 months ago:

Here we are one week later, and the essential lesson of the gold market is "ontogeny recapitulates phylogeny" ... after the greedy few wetted their beaks and the fearful many stayed the course. The essential lesson of all markets is that the wheels go round and round and the scenery never changes.