It’s a subject we analyze continually, and we have recommended gold as part of a sound investment portfolio for years. Today the dollar price of gold is hovering near all-time highs over $3,300 per ounce.
Gold has been on a tear lately. It was $1,830 as of October 5, 2023. At today’s prices, that marks a 75% surge in just 18 months. Gold has outperformed stocks by a wide margin this year, but it has also outperformed stocks for the past twenty-five years. Gold was around $250 per ounce in 1999. The gain since then is 1,180% or almost 12 times the starting price.
This is not the first bull market for gold. In the gold bull market of 1971 to 1980, gold rose 2,185%. In the gold bull market of 1999 to 2011, gold rose 670%. There were notable gold bear markets from 1981 to 1999 and again from 2012 to 2015. There were no bull or bear markets before 1971 because the world was on a gold standard and the price was fixed at $35.00 per ounce from 1944 to 1971. Still, the upward trend in gold prices is relentless and undeniable. Taking the entire period from 1971 until today including bull and bear markets gold has risen over 9,000%. Not bad.
Of course, that’s all in the past. What investors want to know is where do we go from here? The short answer is up significantly.
Here’s Why
The most fundamental reason for the rise in gold prices is simple supply and demand. Central banks predominantly from developing markets moved from being net sellers to net buyers of gold in 2010. Total gold reserves of central banks have risen significantly since then from just over 30,000 metric tonnes (mt) to over 35,000mt today.
The top buyers were the central banks of Russia, China, Turkey, Poland and India. Russia increased its reserves by 1,684mt to a total of 2,333mt. China increased its reserves by 1,181mt to a total of 2,235mt. Iran is also a major buyer of gold, but it is non-transparent, and its purchases and reserves are not publicly known.
At the same time gold demand has been growing, gold output is flat. Global mining output of gold was about 130 million ounces in 2018 and was about 120 million ounces in 2024. Output declined slowly from 2018 to 2022 and then recovered slowly over the course of 2023 and 2024 but the change in both directions was slight.
Gold production is projected to grow slightly from today until 2030 but is still not projected to exceed the 2018 high. In short, gold production by miners is flat. This does not mean that we are at “peak gold” or that new discoveries are not being made. They are. What it means is that gold is becoming harder to find and costs of production (especially water and energy) are going up, so the total output trend is flat.
Continually increasing demand with flat output is a recipe for higher gold prices.
The second driver of higher prices is the role of BRICS+. From an original membership of Brazil, Russia, India and China in 2009 (South Africa joined in 2010), the group has expanded to include Egypt, Ethiopia, Indonesia, Iran and the UAE. It’s waiting list of additional members who will be added in the years ahead includes Malaysia, Nigeria, Turkey and Vietnam among others.
There was much discussion in 2023 and 2024 about a new BRICS currency that would displace the U.S. dollar in trade among members and might ultimately prove to be an acceptable reserve currency to rival the dollar. In fact, no such alternative currency is in the works. It might happen in the future but it would take ten years or longer properly to design and implement.
Instead, the BRICS are building a new payments system using proprietary cables, secure servers and highly encrypted message traffic protocols along with a blockchain-type ledger. Payments are in local currencies in the new payment channels that cannot be disrupted by western powers.
This begs the question of how trade imbalances accumulating in local currencies can be settled and converted into more liquid assets. The traditional answer was dollars. In short, the BRICS+ already have a new global currency, which is actually quite old – it’s gold. This is one reason why BRICS+ members are among the largest buyers of gold bullion.
The Everything Hedge
Importantly, gold is not just an inflation hedge, in fact it is an imperfect inflation hedge in terms of strict correlation. Gold prices have skyrocketed in recent years even as inflation has remained relatively tame (despite an inflation surge in 2022). A better model is to think of gold as the “everything hedge.”
The vectors of uncertainty are everywhere. These include tariffs, tax policy, the Department of Government Efficiency (DOGE), the War in Ukraine, the rise of China, a likely recession, left-wing violence, and even the status of Greenland and the Panama Canal among others.
It’s difficult to forecast how any one of these situations will turn out, let alone all of them and their complex interactions. Stocks and bonds can be volatile as a result. Gold is the one safe haven asset that powers through them all and offers investors some peace of mind. It is truly the everything hedge.
These drivers are sending gold prices higher and putting a floor under current price levels so that investors can enjoy potential upside with reduced concern about the downside. That’s what we call an asymmetric trade, which greatly favors investors.
Finally, there’s a simple bit of math combined with behavioral psychology that could propel gold prices to the $10,000 per ounce level in far less time than most analysts believe.
Investors naturally focus on dollar gains in the price of gold. When gold goes from $1,000 per ounce to $2,000 per ounce, investors cheer on the $1,000 gain. The same is true when gold goes from $2,000 per ounce to $3,000 per ounce. Again, investors pat themselves on the back for another $1,000 per ounce gain.
What investors don’t realize at least initially is that each $1,000 per ounce gain is easier than the one before. This phenomena involves the interaction of simple math and more complicated behavioral psychology.
The psychology is a matter of what’s called anchoring. The investor anchors on the number of $1,000 as a fixed gain and treats each such gain as the same. In pure dollars, they are the same. You make $1,000 per ounce as each benchmark is passed.
But here’s the conversion of those dollar benchmarks with each gain translated from dollars per ounce to percentages of the prior baseline:
Because each $1,000 per ounce gain begins from a higher level, the percentage gain associated with each dollar gain is less. The increase from $1,000 to $2,000 per ounce is a heavy lift. The increase from $9,000 to $10,000 per ounce is not much more than a good month. (Gold has been going up 1% to 2% daily with recent volatility).
This math is what gives rise to a gold buying frenzy. We’re not there yet. Gold buying has been limited mostly to central banks and large institutions such as sovereign wealth funds (SWFs). Retail interest in the U.S. has been slight although retail buyers have been more active in India and China. Once the frenzy kicks in those $1,000 benchmarks will be passed quickly. That’s why it’s not too late to become a gold investor. Don’t kick yourself about the gains you’ve missed. Instead, look forward to the gains that are coming.
How To Invest
The two main ways to invest in gold are what I call paper gold and physical gold bullion. Paper gold refers to securities and futures linked to the price of gold such as exchange-traded funds (GLD is the most liquid ticker), COMEX gold futures or unallocated gold purchase agreements available from large banks. Paper gold will give you price exposure and the potential for gains, but you do not own gold bullion. Many things can go wrong with a paper gold strategy including early termination of contracts, closure of futures exchanges or the failure of a dealer bank. You may find that you’re out of the gold market just when you most want to be in it.
Physical bullion is my preferred way to invest in gold. American Gold Eagle coins from the U.S. Mint in one-ounce or one-quarter ounce denominations are practical. For larger amounts you can look at 1-kilo gold bars from a reputable refiner. Do not buy “rare” or “pre-1933” gold coins unless you are a collector or numismatic expert. The premium for such coins is high and they are not worth the extra expense. Gold is gold.
Do not store your bullion in a safe deposit box. Banks are the first place the government will lock down in a crisis. Your gold could be seized. Use a private storage company like Brinks or install a home safe. If you’re using a home safe there are several techniques you can use to protect it. The best protection is not to tell anyone you have gold. That way no one will come looking.
