For those of you who would prefer to listen:
The final stretch is near. It’s been quite a year for investors. Everywhere you look, up and down Wall Street, you simply can’t escape the AI hype. Artificial Intelligence is expected to revolutionize our way of life, much like the Industrial Revolution in the 19th century and the advancement of the internet towards the end of the 20th. Those were pretty big. Of course that’s a complete understatement. They both changed the game forever. Some say AI will be even more transformative. That’s saying a lot.
Tech stocks have supercharged the Stock Market to numerous all-time highs. It’s the AI trade that’s been the igniter. But there’s another asset that has done far better in 2025. This asset has been around for a while. It’s found deep in the ground. It also shines in streams. The prized possession for centuries again tops the charts. Would you believe Gold is up 50% this year? It has far surpassed the Stock Market and other asset classes. Gold 4K was reached this week for the first time ever. And ever is indeed a long time. The precious metal has captured investor enthusiasm once again. That’s quite a shine.
What’s going on you may ask? Well, there are multiple forces that have driven the price of the precious metal. Global Economic uncertainty is an obvious one. Gold has a history of doing well in uncertain times. The growing concerns about a government shutdown have been realized. We are now approaching week 3, with few signs of a deal. The Market hasn’t shown much concern on that subject, at least as it applies to stocks and bonds. But Gold’s rise has certainly been influenced by Washington’s political games.
Staying in Washington, there’s still that ever-present issue around debt. $37.8 Trillion and climbing every second; There is no evidence anywhere that either party plans to address it. It’s also a problem throughout Europe and Asia. Debt has become pretty pervasive. Rising government debt and volatile global economic growth have steered cautious investors to seek safe-haven assets. Historically, that’s been US Treasuries, but America’s debt has some investors rethinking. Gold has become a universally accepted alternative.
Expectations of more rate cuts is playing a role too. The Market is pricing in 2 more ¼-point cuts before year-end. What’s more, it’s better than a coin flip that there’s a couple more by Spring. The thing is, Gold doesn’t pay interest. It’s not an income generator. But lower interest rates decrease the opportunity cost of holding non-yielding Gold. That makes it more attractive to investors. It tends to send the prices higher.
There’s also this: The Dollar has been weak. The political infighting in Washington and some confusion around American alliances and foreign policy has some global investors unsettled about the future of the Greenback. The weaker Dollar has made Gold less expensive for international buyers. That has naturally increased its demand overseas. Importantly, the price of Gold is up in pretty much every currency. There’s been substantial buying happening.
India is the largest buyer of Gold for jewelry. Its reserves cleared 880 tons this month, the highest on record. Global central banks have aggressively purchased Gold too. China is number one there, with over 2,000 tons in reserve. China has been a net buyer for 11 consecutive months, bringing in an additional 40 tons over that time. Poland has been the largest buyer this year, purchasing over 60 tons. The nation has been seeking safety and insulation while its neighbors, Russia and Ukraine, are at war. Uzbekistan and Kazakhstan have also been large buyers. Their geographical locations aren’t the most stable.
Inflation is still an issue. The prices we pay have gone up over the years. They haven’t much come down. The nagging inflation generally sends investors into Gold as a hedge to preserve purchasing power. The Gold exchange traded fund (trading symbol GLD), which we own in portfolios, tracks the underlying metal price closely. Gold funds saw record inflows in September, with the GLD nearing $130 Billion in assets for the first time ever. It increased by $26 Billion in Q3, also a record. There were nearly $500 Billion in Gold funds around the globe entering October. A week in, it’s higher still.
Gold carries many characteristics we investors covet, including diversification and safety. It has a strong track record throughout time.
You know what else has been running, which has accumulated some of Gold’s characteristics in its youth? Crypto. Bitcoin also hit an all-time high this week, reaching $126K. That translates to nearly $2.5 Trillion in total value in Dollars. There’s an estimated $28 Trillion in Gold. So the total value in Gold is over 10X the size of Bitcoin. Keep in mind, Bitcoin has only been around less than a quarter of a century. The history of Gold is nearly as old as humankind itself.
There are now 240K Crypto Millionaires and 36 Billionaires. Crypto owners tend to be younger than Gold investors. What’s interesting is that traditional Gold investors tend to be more risk-averse while Crypto investors are considered more risk-seeking. Bitcoin has been more correlated with Tech stocks than Gold. Something’s gotta give here. But when people are making money, they tend to be happy and want to stay that way. The thing is, it always lasts until it doesn’t. When it stops, nobody knows.
If you’d like to read more on this subject, I wrote a piece in Newsweek back in 2022. It’s titled “Eureka! Digital Gold – A Way To Think About Crypto”.
Here’s the link: https://www.newsweek.com/eureka-digital-gold-way-think-about-crypto-1686113
I hope you enjoy it or enjoy reading it again!
Have a nice weekend. We’ll be back, dark and early on Monday.
Mike
