Gold

Humans are weird. The more expensive stuff gets, the more we crave it.

FOMO is a powerful thing. Look what it did to house prices in Bunnypatch during Covid. It could be a generation before that weirdness unpacks.

Now it’s gold.

The yellow rocks touched $4,000 US an ounce for the first time this week, up 50% in a year and now attracting boatloads of people who risk buying in at the top. It’s the best showing since 1979, when John Travolta still had hair. Gold pays no interest or dividends, costs money to store, may be hard to liquidate (depending on where you are) and profits are fully exposed to capital gains tax. But still, it’s shiny, feels eternal and we love it.

There are billions of tons of gold, but most is buried down in the earth’s core, way beyond man’s reach. What has migrated to within mining range over centuries has been dug up (a bunch of it now coats Trump’s White House office). It’s estimated there’s about 16 years of supply left.

Today’s questions: why is gold doing what it’s doing? Should you jump in? And is this blog now shamed for mocking bullion-lickers for the past 17 years?

There is nothing good about the rise in the value of this stuff. People don’t cash out of other perfectly liquid assets and rush to bullion because they’re confident and optimistic. The opposite. It is an asset fueled by fear, apprehension and worry, plus erosion of the global reserve currency.

What are folks scared of?

Lots.

Concern about America tops the list. Trump is acting like an authoritative wannabe dictator with paramilitary forces in US cities, tariffs that have caused a world trade war, judicial retribution against political opponents, an inflationary economic strategy and now political polarization leading to a government shutdown. Nothing good there.

Second, lights-out in Washington means no fresh and critical economic data is available upon which to base sound financial decisions. There was no non-farm payrolls report Friday. There may not be an inflation report next week. This hurts visibility on the economy, the labour market and what the Fed may do. So gold is a safer bet than the US$.

Then there’s worry about US equities, given the above. P/E ratios are rich. Maybe AI is a frothy, manic bubble. The market has hit a string of record highs in a rapid, emotional way after plunging close to bear market territory in April. Many investors worry that Trump’s rash cuts to corporate taxes, regulations and the structure of government itself may have given Wall Street a sugar high.

Ditto for falling interest rates. After months and months of being on hold, the Fed is easing up on monetary policy with at least four (and maybe six) more cuts ahead. That has goosed equities as the cost of carrying debt declines, and also lowered the value of the dollar, boosting gold which is priced in it. Bullion bunnies are convinced cheaper money, more borrowing, more spending, more stimulus and the inevitable impact of tariffs and higher prices will bring a new wave of inflation. Gold feeds on that.

There’s more. US government bonds have lost some appeal given the mess in Washington and that country’s massive $36 trillion debt. The American budget deficit is out of control. Trump will add at least $4 trillion in debt, says the Congressional Budget Office. At what point does the very creditworthiness of America get pooched, leading to bad days in the bond market?

Then, the world. France is on the verge of political and debt collapse. Far-right political movements are rattling much of Europe. Putin is stronger than ever. Wars continue in Ukraine and Gaza. And is NATO fraying at the edges, like the UN seems to be?

Well, you get the drift. Obsessing over geopolitical and macroeconomic stuff leads to staying in bed with the covers over your head, and investing in gold. No wonder precious-metals ETFs have bought 100 tons of gold in the last few weeks, and why average folks have been lining up to buy a few ounces.

Okay, where from here? Time to dive in?

Some analysts say a ceiling of almost $5,000 is possible. But then gold could fall a thousand dollars in a month or two based on what the rogue president or the Federal Reserve do. This is not the same as holding stock in the Royal Bank, which is an actual business throwing off operating profits and dividends.

Should you own some? Sure, if you like stroking it. Otherwise, for most people owning the TSX through an exchange-traded fund is probably enough gold exposure, since the Canadian market has a substantial precious-metals weighting.

As you know, this blog has consistently and forever told you to hold a third of the growth assets in your B&D portfolio in the Bay Street index. That gives bullion. It gives oil. It gives the banks. And it provides diversification, lower risk plus a steady stream of tax-efficient dividends. So far this year that market is up 22%, with instant liquidity. Don’t be greedy.

Remember pandemic real estate? Did we learn nothing? Keep your pants on.

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To be in touch or send a piture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2025/10/08/gold/