Posts Tagged ‘gold’
Yesterday, the price of gold dropped 10% in one day. Even with that decline, it is still up 12% this year and up 84% since the beginning of 2025. Today, I will write a bit about gold because I have built a small position for all of my clients since 2022, after the Russia-Ukraine conflict started.
Remember when the US and EU froze Russia’s foreign reserves? That move, which was intended to hit Russia hard, sent a chill through central banks everywhere, especially in the Global South. Until then, the US dollar had served as a reserve asset in many sovereign central banks, meaning that they needed to acquire US dollars before they could issue their own currencies.
The Great Dollar Diversification
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When I was in California, I had a very intelligent debate with a doctor. He mentioned that in 2012, the US took in $2.5T in revenue and spent $3.6T in government expenditures.
He accurately pointed out, “If I spent like that, I would be bankrupt in a few years.” He believes so strongly that the US is going the way of national bankruptcy that he has moved substantial amounts of his money overseas and has invested a great deal in gold.
I happen to believe that gold is the most unproductive of assets, since it does not generate dividends or interest and it actually costs money for upkeep in a safe in a Singapore bank.
On top of that, by throwing so much money into gold, one could over prepare for a disaster that is very unlikely to happen and thereby miss out on all the opportunities to grow wealth in this country.
But I still need to explain why the US won’t go bankrupt anytime soon. Here are two explanations:
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Inflation is the silent killer of wealth. It does not have the “bark” of a full-blown financial crisis, but it certainly has the “bite.” Just imagine if the inflation rate is 4% over the next 10 years; within a decade you would lose nearly 40% of your wealth if you didn’t do anything about it.
Inflation over the next decade is highly probably because of two simple macro realities:
- America – from the federal government to the states down to individual households – is heavily in debt. The easiest way to get out of debt is to print money. There is a tremendous political incentive to do so.
- China, which has been the low-price setter for the past two decades, has seen labor costs galloping at a 20% to 30% annual clip lately (thanks to the one-child policy). Before long, that will translate into higher prices at your local Walmart.
The Investment Scientist 