Gold is trading around $2040 in a powerful rally over the past few weeks. This is only a percent or so from a new all time high. From our congenitally glass-half-empty point of view however, it would be a new all time low for the US dollar, now worth less than 1/2000 ounce of gold.

That’s more than our gloomy disposition talking, though. After all, gold hasn’t changed in about thirteen billion years. We can hardly make a similar claim for dollars. And when gold prices reach all time highs is decidedly not an objective reality, but rather depends on which pricing unit you choose. Gold price movements are markedly different if you’re doing your accounting in euros, pounds, yen or what have you. It’s a safe bet that it’s already been hitting records in terms of Argentinian pesos.

Not that gold itself is somehow supernaturally fixed in value. It lost value over the last two decades of the twentieth century, even against dollars, yet few would claim dollars themselves gained in value. Rather the durability of its value is most evident over long periods of time … as man-made assets wax and wane in trust, gold wanes and waxes as humans have lesser or greater need for its utility as an trustworthy store of value.

No doubt a decline in confidence in man-made money in general and the US dollar in particular is at work in 2023. The USD has been declining even in terms of other currencies. Its issuer, the Federal Reserve, is under enormous pressure to relent in its efforts to support its value, and the bond market has already been cutting interest rates for months. It has been falling from favor in international trade, as shown by the recent agreement between China and Brazil to sidestep it as a trading medium. This is a result of not only monetary policy but the brazen weaponization of the dollar in an attempt to punish Russia. Many national governments have to be looking at this and wanting to distance themselves from one day being on the receiving end of the same. The exorbitant privilege is finite and is being used up.

What next? Synthetic Systems had projected gold strength a couple quarters ago, which has so far has been the most successful of its recent forecasts. It’s also receiving a tailwind from a rally in Treasury prices, one of the more highly correlated with gold. Bonds are its main competition in the securities markets, and as investors perceptions of prospective real yields decline, gold appears more attractive.

The short term is better left to traditional technical analysis, and even that is nearly a crap shoot, and I don’t pretend to have special insight there. We do know though that as bonds grow more expensive and yield less, stocks are far from great values themselves, as I’ve argued elsewhere. This leaves currencies and commodities. Gold is both … the most predominantly monetary of the elementary commodities.

14 thoughts on “Gold

  1. jk says:

    i hold a gold position but fear that the recession i foresee [fwiw] will cause ALL assets to fall [in dollar terms]. the sharp and huge rally in bonds predicted by ss and the drop in copper sure look like a recession. do you think gold will hold or even increase its nominal value in that setting?

    1. Bill Terrell says:

      Recession (whatever that is;-) should be good for gold prices. Markets anticipate easy money, dollars decline, and gold rises. Just what we’re seeing now.

      The exception is a deflationary crash. Of course it is pure illusion that “all assets fall” … that doesn’t happen. What does happen is that dollars soar in value. The easiest way to appreciate it is to consider what happens in a short squeeze.

      Convinced a security will decline, shorts borrow shares, hoping to repay them at a lower value. If too many traders pile in, a short squeeze happens. The shares soar as traders rush to cover.

      But what if the security happens to be a currency? Same thing. The only differences are that shorting currency isn’t a trader’s speciality … we’re so used to currency losing value, it’s society-wide. And that we use the currency itself as the unit of value. So instead of directly observing the “price” of the currency exploding higher, we see prices of other things we measure with it imploding lower.

      Gold is no exception. It declined in the worst part of the 2008 crash. More recently it declined in the smaller deflationary crash in 2020. But in both instances the decline was only in terms of spiking currency … it rose against almost everything else, conspicuously including stocks. Not surprising, since stocks as a whole embed a currrency short … most companies have debt on their balance sheets.

      The real declines in gold come later when markets suss out recovery and the bullish wand passes to stocks.

      Take a look at the 2020 chart … gold dipped, but scarcely crashed. And that’s in USD … it rose against virtually everything else as markets immediately began to bake in the flood of dollars that would soon follow.

      It’s theoretically possible to go all cash at just the right moment as the currency starts to soar, then convert it to gold at just the right moment to avoid the currency’s slide. Nimble traders might attempt it, but that wouldn’t include yours truly;-)

      Most of us would be better served by making a conscious effort to rise above the psychological illusion, accept that the currency spike is transient, and prepare by allocating appropriately in advance. The mental discipline pays off throughout investing.

  2. jk says:

    i understand that the issue is possible deflation, which is why i said all assets could fall “in dollar terms.” as i said long ago at itulip, i’m neither a bull nor bear, i’m chicken. i keep thinking of the people who lost money they had and needed, in pursuit of money they didn’t have and didn’t need.

    while i was very aggressive in the early 1980’s, among other things using s&p futures to have leveraged long synthetic index funds, i have over time become more risk-averse. e.g. i closed my last index future the friday before black monday in ’87, and although i dodged that bullet i was quite affected by the scare. [i think elaine garzarelli was taken to an e.r. because she thought she was having a heart attack.] and although i’m quite aware of the money illusion i try to minimize nominal draw-downs. thus i’ve trimmed my precious metal exposure [phys and select miners] to only 12% of my capital. my ultimate target in theory is 20%

    1. Bill Terrell says:

      No argument there, JK. I can only make general observations; every investor knows their own circumstances and goals better than I could.

      One such circumstance is nominal obligations. Someone that has debt or is making mortgage or car payments can’t ignore them, and needs nominal assets and income to cover them. Basic diversification means having some nominal assets too … note my remarks about positioning are always in relative terms (underweight, overweight), without specifying relative to what.

      The general observation is that dollar surges tend to be fleeting. In 2008, it covered all of nine months. In 2020, more like weeks. And this is all in the context of decades of overwhelmingly downward movement. So while we always need to be prepared for the possibility of a deflationary squall, and can often identify when the risk is elevated, long term structuring an entire portfolio on the basis of nominal capital can be costly. I know you’re not suggesting that … just clarifying my remarks for the benefit of readers.

      The collision of a massive pile of debt (dollar shorts) and tighter money suggests one of those elevated risk situations. But the biggest debtor of them all, the US government, is short many trillions of dollars and could be expected to act swiftly. Gold may already be starting to sniff this out.

      What I do believe everyone can benefit from is this way of thinking about their portfolios. Put them all on an equal footing … cash, bonds, stocks, commodities … being resolutely conscious that the choice of unit of account is arbitrary … that the “dollar value” of one’s investments is no more fundamental or correct than the “gold value” or the “stock value”. There is no one absolute standard of value among them. All we know with certainty is their relative values.

      Ubiquitous claims like “stocks have returned 9.8% annualized over the past 50 years” are false. Even statements like “stocks closed up 0.6%” today are. They imply absolute values where none exist.

  3. jk says:

    1. money represents a claim on future goods and services. unfortunately claims [especially including off-balance sheet federal entitlement obligations] far exceed the foreseeable supply of goods and services. thus we must have inflation with financial repression. i think it’s likely that e.g. pension funds [including ira’s and 401k’s] will be mandated to hold a certain proportion of treasury paper, along with banks, insurers, and so on. it will be “for our own good,” of course, but will increase the pool of buyers for the flood of gov’t debt.

    2. on the bright side of financial repression, i learned yesterday that the REAL value of the total federal debt is currently LESS than the real value of the extant debt in march 2020. this is a function of inflation [using official cpi] as well as the lower current value of debt issued at much lower rates than exist now. [the same phenomenon which sunk silicon valley bank] btw this made me realize the treasury has the means to skirt the debt limit far more than currently reported. the treasury can buy paper it issued at very low rates AT A DISCOUNT. e.g. it can buy a $1000 face due 2/15/45 for $817 [just looked it up], then issue a new $1000 bond at par, netting the difference for additional spending.

    our financial circumstances resemble the 1940’s-’50s more than the ’70s. and the “solution” will be the same. the btfp, for example, is a soft form of yield curve control, a step along the way.

    1. Bill Terrell says:

      I would generalize your first statement. Securities are claims on future goods and services. I justify that in detail in The Flow Of Inflation.

      Let me also cite the counterbalance to the being prepared for deflation consideration. The dollar may soar in value. But what about the opposite risk? The dollar crashes? Prices soar, possibly even into hyperinflation.

      At the moment, the risk of a deflationary crash seems higher than a hyperinflationary crash. The dollar short position (debt) is massive, and like a pile of tinder in search of a spark. But then what? We both know the policy response playbook. Slash rates and print. The last such episode sent the dollar tumbling, first seen in soaring gold, bond, stock prices, then in consumer goods and services.

      This is where I get chicken. I don’t trust that in the fog of potentially fast moving events, I will accurately and nimbly make all the right short term moves. When I want it most, gold may even transmute to unobtanium. And if history is any guide, nominal gold price weakness is likely to be both shallow and transient. It was in both recent deflationary squalls in 2008 and 2020.

      My diversification policy stipulates that I hold at least some position in each major asset class. As a strategist, I’m overweight treasuries and gold, but far from out of stocks. I set aside enough cash to meet expenses while any plausible deflationary episode plays out, but also allocate with an eye towards what may follow.

      We’ve already had the 1940s versus 1970s debate. The forties debt problem was solved by ending the war and the associated spending, and without similar spending reduction it wouldn’t be solved this time either.

  4. jk says:

    i’m 12% in phys and select miners, 7.5% in edv [for the deflation scenario and in sync with ss’ bond predictions], 26% in an 8 yr tips ladder, 28% in tbills and the etf “bil.” like you, i’m not confidant i can catch the turns and so have exposure both ways. my hope is to turn a lot of that cash into commodities, including more gold, and cash out that edv position, during a big equity and commodity sell-off, provided i have the nerve. ss points to the 2Q2024 for these events.

    the action might not be so fast-moving. looking at the latest ss graph it’s predicting we’ll have 2Q, 3Q, and 4Q 2024 to make these moves.


    1. Bill Terrell says:

      I hope you’re right about time. As I mentioned in the last post, I’m taking SS with an extra grain of salt, afraid the smooth drawn out transition SS imagines may come in big chunks instead. Generally though your strategy sounds similar to mine.

      I had small positions in EDV complemented with cash but phased them out in favor of much larger positions in GOVT. The milder behavior along with the fat yields just felt better, especially given the lack of yield on cash. (GOVT is kinda like a position in cash plus long bonds but with more yield. It also gets a bit of price appreciation when short and mid term yields fall.) Besides gold, silver, platinum and copper, I have some commodity exposure via COMT, based on the energy-heavy GSCI or whatever the current branding is, along with an assortment of land and realty stocks like TPL, WY, FPI, CRESY, etc. Broadly I’ve been accumulating global dividend paying stocks, but am taking my time approaching my target in light of the outlook.

      Pet peeve: Gigacap and teracap companies that don’t pay dividends. Mature companies whose growth era is behind them have no excuse to hoard capital and tend to squander it on stock buybacks that primarily benefit insiders with stock option compensation packages. They’re free riding on cheap capital from public investors. Now that interest rates are no longer zero, dividends yields of zero can’t be justified. The game is up.

    1. Bill Terrell says:

      Aye … I didn’t list all of the individual stock positions lest they be taken as recos, but with that caveat …


      They’re definitely not recos … my reasons for owning them are individual. For example I bought TPL 20 years ago in a taxable account and it’s up over 200 times; now it’s throwing off a decent dividend and selling would trigger a big tax bill. It’s a combined realty and commodity investment … a land company in the Permian Basin. I also think of CRESY as a land company, but there’s a commodity angle there too … it’s agricultural land. FPI, LAND, BHP & WY for similar reasons. AVB, CPT, INVH … I like residential realty. FUN, CTO & JOE … I like what they own. I have no particular expectations for performance … it’s just stuff I feel good about owning.

      I’ve talked before about positions of more general interest:





      The first two are core stock and bond funds and make it easy to adjust asset class exposures. The next eight emulate the global stock market without those despised superbig non-dividend-payers. The first four of those are exclusively dividend paying stocks and the last four add quality, value and small caps. I like Wisdom Tree’s dividend weighted (as opposed to cap weighted) model. REET helps compensate for the peculiar absence of REITs in VFQY & VFVA as well adding some more income-yielding realty. COMT adds commodity exposure; together REET & COMT sub for the individual realty-and-commodity-oriented stock positions in smaller accounts where it’s inconvenient to hold many securities. The last five are my “cash” positions.

      Some context … this is primarily an income portfolio. Positions aren’t generally held for sale; little pressure to speculate about what they might sell for years from now.

      You now win the Financology award for the longest answer to the shortest question.

  5. Milton Kuo says:


    My question is only tangentially related to the topic of this article so I hope you don’t mind my asking it here. I think it was on iTulip that you had juxtaposed the depreciating purchasing power of the dollar with the size of the national debt. The implication, as I understood it, is that the purchasing power of the dollar would increase noticeably if the national debt were noticeably reduced.

    This led me to this question about a hypothetical situation. If the U.S. were somehow able to buckle down, trim away a lot government pork, crush the FIRE economy, pay off the vast majority of the national debt, carefully control foreign capital inflows and outflows, all while having a coherent society, would it be a likelihood–not just a possibility–that $20 could come close to purchasing one troy ounce of gold as was the case before the Great Depression?

    1. Bill Terrell says:

      Not a problem, Milton … interesting question. The national debt and the value of the dollar are loosely related given that a substantial portion of it is financed via the inflation tax … the tighter link would be based on supply and demand for the currency. Supply being a function of base money (that directly issued by the Fed) and the multiplier that results from fractional reserve banking, demand being notably a function of debt (particularly private debt since government has little urgency to acquire dollars to reduce debt), yadda yadda…

      Turning to your question, anything’s possible. You might be struck by lightning and win the lotto jackpot on the same day. The likelihood of that happening though is of course vanishingly small.

      The dollar could rise by the some 100 times necessary for a mere 20 of them to once again have around the same value as an ounce of gold. Consider though what else would go along with that. The Dow Jones Industrial Average would be about 300. A nice home in a good neighborhood could be had for around $5000. A loaf of bread would be about five cents. It could easily be a very prosperous kind of economy – it has been before – although the path to get there could be pretty rough. Just for instance, you might wonder, if the dollar has such excellent appreciation potential, why anyone would bother investing in anything else. The gist of it being that large changes in the value of the currency, in either direction, deflation or inflation, can be economically disruptive.

      As a state, though, stable currency is supportive … and certainly all the other factors would be. Just imagine for example all the sharp minds, human talent and energy, now being put to use finding ways to dodge the system through financial speculation, cryptos, tax gaming, etcetera, actually being put to productive use raising better food, building better and more affordable housing, bolstering infrastructure, eliminating disease …

      1. Milton Kuo says:

        Thanks for your commentary, Bill. That clarifies it in my mind.

        The dollar could “easily” recover all of the purchasing power it has lost since the Great Depression if the U.S. and its citizens were truly serious about not having a crappy currency. It would probably take close to 100 years to accomplish but it seems clear to me that it would almost be the outcome if we and subsequent generations were serious. Demand for the dollar would arguably be quite strong due to domestic demand and foreign demand (a truly strong currency) unless other foreign countries also establish truly strong currency policies or if capital controls prevented foreign nations from playing FX games.

        It seems to me that the gargantuan debt does drive down the purchasing power of the dollar because everybody knows that such a debt cannot be easily serviced or repaid without depreciating the currency. I suspect merely beginning on a program of a substantial pay down of the debt by ending all of the pointless wars, eliminating the standing army with the exception of maybe some personnel for maintaining machinery and infrastructure, taxing away FIRE economy giveaways, and ending the welfare state for non-citizens would greatly strengthen the currency.

        1. Bill Terrell says:

          The arrow of causation goes both ways. Large government debt incentivizes currency debasement. Currency debasement incentivizes debt. If you’re convinced a security is going to decline in value, you can profit from borrowing it and then repaying the owed security after it’s lost value. Currency is no exception. After over a century of inflation, shorting the currency has become a way of life.

          The trouble is the more popular the trade becomes the less able it is to work. In the extreme everybody could just quit their jobs and get rich shorting the currency. Then without anyone growing food or producing anything else the economy dies and so do all its participants. We’ve actually performed a partial experiment in that the past couple of years with resulting shortages of commodities and labor.

          How could the dollar return to its value of 100 years ago around 1/20 ounce of gold? There’s an easy way and a hard way. The easy way is to lop off two zeroes. 100 old dollars become 1 new dollar. The hard way is it appreciates an annualized average of around 4.71% for the next 100 years.

          The incentive structure is formidably arrayed against the latter. Not only government but corporations are subsidized by currency depreciation. It’s no accident that after fifteen years of heavy currency production and interest rate repression not only has government grown but also the wealth and power of the world’s biggest corporations. There has been a massive transfer of wealth from the working class to the corporate and political elite. Since this powerful elite controls policy, it’s hard to see what reverses it. Once the FIRE is roaring, it’s really hard to put out.