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January 3, 2025 - 7:00am
After the global instability which characterised 2024, there is widespread hope that this coming year will provide some much-needed respite from chaos. Investors seem to disagree, though, at least if we look at the asset everyone is talking about this January: gold. The consensus seems to be that gold will be a strong performer in 2025 just as it was in 2024 — which, implicitly, means investors are betting that many more global changes are afoot.
Gold started 2024 at $2046 per ounce. On 1 January this year, it was priced at $2622 — an increase of just over 28%. For context, in that same period the S&P500 index only saw total returns of around 25%. Even in a good year for the stock market, those who parked their money in gold found themselves laughing all the way to the bank.
Higher gold in 2025 is nothing short of a consensus trade. JP Morgan, Citibank and Goldman Sachs all have a price target of $3000, with commodities analysts citing lower interest rates, momentum, central bank-buying, and geopolitical turmoil. But, since the start of 2023, only the last two of these reasons have really driven the gold price. The developments are linked: central banks are buying because the geopolitical climate is forcing them to diversify out of dollars, and gold has become a favourite means to do so.
It’s not just central banks which are bullish. Asia Times’s newsletter Global Risk-Reward Monitor, which is widely followed in financial circles, is tipping gold to reach $10,000 an ounce by the end of the decade. While investment banks are looking at annual trends in gold demand, deeper analysts are looking at potentially major changes in the global trading system in the coming years.
On its face, Asia Times’s argument is simple enough: since the seizure of Russian assets in February 2022, countries around the world are moving away from using the US dollar as a reserve currency. Given that the financial markets of these countries are not very well-developed, it is unlikely that they will be able to use their own currencies to fully settle trade with one another by 2030. But there is one time-tested trade settlement mechanism these countries could use: gold.
The problem is that there is simply not enough of the resource currently in existence to settle these trade balances. Or, rather, there is not enough gold to settle these trade balances at the current gold price. If the price adjusts, there will be plenty of gold to go around and the authors at Global Risk-Reward Monitor reckon that around $10,000 would do the trick.
What will trigger this move to trade settlement in gold? The newsletter highlights one possibility: the collapse of a bubble in American tech stocks. In the past, America financed its trade deficit mainly by selling Government bonds to its trading partners. While these bonds are still a key component of international borrowing by the United States, around 2018-19 they stopped being the most important source of external borrowing.
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SubscribeSo the “barbarous relic” is trusted more than pieces of paper which a government can print at will. This can hardly be a surprise.
The price of gold has been manipulated down for years, but that seems to have stopped working.
How exactly is this downward manipulation of the gold price working ? And why has it now “stopped working” ? What changed ?
As I understand it the price is manipulated by issuing “gold contracts” ie contracts for the purchase of gold. But as with currencies more are issued than the amount of gold. They are never “cashed” and are a mere financial instrument. Hence the decline in the gold price. It is some time since I read the explanation so the abòve is only as I understood it.
As pointed out by the comment by Santiago Excilio, the world situation has changed considerably.
I have seen/heard similar explanations myself. Again, a long time ago and as with a lot of high-finance chicanery, I can’t say I fully understand how it works.
It looks like that is why it works: few understand it, and those that do are profiting from it.
Correct
The premise of this article is incorrect. The gold price is not going to affect the dollar. First, and most importantly, the price of gold is simply an expression of the supply of and the confidence (or otherwise) in the worlds fiat currencies. As the worlds money supply increases so does the price of gold, because there is a relatively fixed supply of the latter, whilst the former is essentially elastic. Secondly, to the the extent that people have faith in the underlying robustness of those fiat currencies the price of gold will reflect that confidence. This has been steadily declining over the last several decades as national debts have risen, growth rates have declined and various financial crises have dampened confidence in governments as they printed money, and the price of gold has soared. Lastly, the dollars supremacy as reserve currency is underwritten by the US economy and military strength, which relative to any other country is still pretty unassailable, and failing that the US also has the worlds largest gold reserves buy a factor of nearly three, so even if the fiat currencies continue their decline they will be better positioned than anyone else.
But has the amount of gold held by the USA been audited recently? I seem to recall that the Fed won’t allow any audit of its gold stocks.
Very well said. It also bears remembering the history of gold and why it has traditionally been important. Ancient peoples had many different mediums of exchange but most had drawbacks. Bread spoiled. Grain eventually decayed and was vulnerable to pests. Land couldn’t be easily passed back and forth in transactions. Livestock died of disease, and so forth. Gold was relatively durable compared to other metals which oxidize much more easily so it became used as a medium of exchange all over the world, and it became one of the material symbols of wealth. Where it wasn’t available, people often used other relatively durable objects, some of which weren’t terribly valuable in and of themselves, making them basically early examples of fiat currencies. For 99% of human history, this was the limit of human need for gold. Only very recently has there been any practical commercial use for gold. You will find small amounts of gold in just about every computing device in the world, from flat screen TVs, to those disposable printer cartridges that cost way more than they should. It’s a very tiny amount, to be sure, but we’re making millions of these things. Basically anything that has a computer chip in it has some gold. The technology and and electronics industry use several hundred tonnes of gold a year, and that figure is rising. I expect the price of gold to continue to rise, but I’m not sure how much can be read into that because gold is now subject to the same economic forces as other goods and materials, that is as more is used, the demand will increase and the price will rise. This is why there’s been a sudden resurgence in gold mining in Alaska and elsewhere. The tiny quantities that can still be gotten out of the ground are now profitable to extract.
Hold gold for the long term and you learn not to get overly excited when the price goes up or down. Fun fact: Sovereigns are 0% for CGT.
It should be worrying that money has this strong tendency to flow into non-productive assets. Whether it’s gold or existing real estate, or even stocks with high p/e ratios. In the end it doesn’t produce real wealth now. Perhaps even on the contrary. What I think should actually happen is a second (or third) Bretton Woods. The first one had the intention to stabilize the world economy and prevent another world war, also by making the world a little bit more fair. Now that those ideals have completely deteriorated and we are starting to see the results, the world should consider to sit down again. Perhaps finally introduce that Bancor instead of gold or the dollar.
But what is money? I think you actually mean wealth ie “value”. And it flows into assets which are likely to hold “value” and at best also produce an income (“yield”)…real property usually does precisely that.
In times of uncertainty (and inflation as now…actually stagflation really) those with wealth seek to protect that and care less about the income which will, in any event, be paid in devaluing currency.
The USA won’t agree to the US $ not being the “reserve” currency because the reserve currency has “the exorbitant privilege” of lowering borrowing costs and insulating it from currency crises.
Once that privilege is gone the currency becomes like any other.
Real estate and other assets became interesting because of cheap credit. Interest rates were artificially pushed down because of central banks buying bonds after the market essentially appeared to be a credit-Ponzi before the 2008 crash. It also provided more liquidity to non-bank financial institutions, some of which flows to real estate as well. All of this, again, incentives banks to lend out more and thus asset prices go up. The higher asset prices are the more they can lend etc. etc. That has not much to do with store of value anymore. That is, once again, a Ponzi.
Yes that is the situation caused by the Great Financial.
However long term real estate has always gone up in value. Residential goes up because there’s not enough of it and there is a human bias to own where you live, commercial eg offices because the economy is basically services based, and they can always be turned into residential eg Centre Point, retail can be demolished and turned into either of the above ( the UK is over-shopped..) and industrial likewise.
As Mark Twain said about land “they’re not making any more of it”.
Real estate does no always go up. Take the 1989 crash in Japan, prices are still not back!
It is strange that people forget that houses are primarily to live in. This means your average house has to paid for by people with people with average salaries. If that cannot be done anymore it means there is some Ponzi-like situation going on.
If you want to turn houses into a superior or even a good store of value, you essentially have to corrupt the market by playing financial games and/or squeezing the market. Because houses are dead capital – they do not produce anything and it is really not that hard to build affordable houses for everyone. The financial games are simple: produce a credit Ponzi either with or without support of the central bank (see also Minsky’s hypothesis). Squeezing the marked you can do by not building through regulation, NIMBY-terror and making sure population increases.
Private ownership of land is closely related to this story of course. It is noteworthy that the fathers of capitalism such as Adam Smith and John Locke warned against private ownership of significant pieces of land as it has a tendency to reintroduce feudalism and undermine the dynamism of capitalism.
A valid point however I had the Western world mainly in mind.
The fact that the purpose of a house is to live in doesn’t prevent them being a store of value. Clearly they are precisely that, in fact the main investment of value that people own. Further they really aren’t “dead capital”, they are capital which yields a rent ie the rent which the owner doesn’t now have to pay, but otherwise would. That is surely a yield from which the owner benefits.
House prices in the “Anglosphere” grew because of the sub prime mortgage boom (courtesy of the US legislature…thanks a lot). Blair and Brown were happy to allow it in the UK because people felt wealthier and there was a “boom” which inevitably bust.
Allegedly the “global financial system” was at risk ( was it really…?) so more money was printed and the game went on. But the value stored in houses didn’t evaporate…the houses are still there…and still lived in.
So yes I still consider real estate as a valid store of value which appreciates long term.
As for state ownership, it hasn’t worked too well in other sectors.
It would be reassuring if the Japanese situation of ’89 did not look a whole lot like our current situation. But unfortunately it really does.
Still, even in the Western situation houses never appreciated much beyond normal inflationary pressure. And so they were not necarilly a good store of value, especially before the 70s. But it is only after 2000 and especially after 2008 that the increase suddenly was a lot more than, basically, since the beginning. Why? Well, because in 2008 it appeared to be Ponzi, we all know CDS story. House prices did in fact crash and what did they do? Reinflate the Ponzi with the help of central banks. Also, even now it isn’t even that good as a store of value, gold (and bitcoin of course) typically performed better. Moreover, a house can easily become a liability.
As to your point about rent, that is precisely the problem. Rent seeking is counter productive. If the velocity of money is low and people start to extract value out of existing capital the economy stagnates. And that is what is happening: while assets boom not much happens in the real economy.
Not really. People have always wanted to save money in some form or other. Back in the day, they saved in gold coins. For sure they may have invested some of those coins in a neighbour’s new venture or suchlike, but the prime motivator was saving for a “rainy day”, or the future.
You can’t expect people to risk all their savings in the stockmarket, which is effectively lending your money out to businesses. People save for security, and at the moment more people are figuring gold is where the security is, so the price is going up.
The price of Gold has not changed
The value of the $ has dropped, and so too your local currency
To repeat a reply I gave a very similar comment of yours 4 months ago:
What is the price if not the rate of exchange for another thing, usually currency?
No this is of a completely different order. We now live a world were the bulk of the money simply does not move. As Larry Summers argued, the Westerns economy has fallen in “secular stagnation”. That basically means there is a lack of true investment opportunities and low demand. This theory argued that basically even negative real interest rates do not really get the economy to boom and so you get financial bubbles instead. And so we pretend that things like unaffordable housing means a booming economy but it is the precise opposite. And also these bubbles always crash sooner or later.
Given that the dollar is strengthening vs just about every other currency, gold is more of a problem for currencies such as the euro and sterling.
> Should gold rise to $10,000 an ounce by 2030, those who have argued that the best way to judge the price of the dollar is by the dollar price of gold will finally be vindicated.
And if it rises to $9,999? This talk about vindication sounds more like the author has some personal score to settle rather than being motivated by a desire for deeper understanding.
“The best way to judge the price of the dollar” will continue to depend entirely on what you want to buy with it. And for most people that isn’t gold.
The West is completely asleep at the wheel with regards their so called World Order and it’s fiscal Hegomony of The World Bank and the IMF
The USA alone derives on average
6 to 7 % of it’s Annual GDP for doing nothing
Here’s big clues as to how the Teutonic plates of Global Economic ‘ Financial and Politics
Moving fast now away from the So called World Order
China in 2024 on average each month purchased 30 tonnes of gold via Switzerland and using
US treasury $ Bonds to pay for the gold
BRICS and BRI are now a unstoppable force
The USA whole fiscal system is literally a Ponzi scheme and shall
Collapse under its own weight
One may consider the $ as none other than “A Paper Tiger ”
The only tooth in its Jaw’s are nuclear weapons
But due to the Iron clad Relationship between Russia and China The Paper Tigers tooth is rather weak
This is nonsense. There is nothing to stop anyone investing in non-dollar currencies already if they wanted . But they’re not. Even China is paying for gold in dollars. There is simply no viable alternative currency at scale. As to whether USD is a “Ponzi scheme” : no serious players will invest in China’s (totally opaque) currency which can impose capital controls on the whim of the Chinese Communist party. Maybe if President Xi suddenly decided to open up a real stock market, allow the yuan to float freely , and become a free market economy it could happen. Not gonna happen.