Why Gold is Rising So Much, and So Quickly

Gold is on the move again, and the big question is why? And the answer is nobody knows. It is, after all, just a worthless shiny rock, right? Wrong. Gold is moving up for a number of reasons. First, let's take a look at the price. Gold is now above three thousand five hundred dollars per ounce after breaking out from a multi month consolidation pattern where it tested resistance at thirty four thirty five separate times since April of twenty twenty five. Now, thirty five hundred dollars per ounce is significant because it is one thousand times more than what the price of gold was when we delinked from the gold standard back in 1971. For decades, the price of gold had been held at thirty five dollars per ounce by law, meaning that every thirty five US dollars were redeemable by certain parties for an ounce of gold. And when the United States had issued too many dollars to make good on that promise, we told the rest of the world, sorry, you can't actually have your gold. And from that point, the price of gold has consistently, though with lots of volatility, moved higher and higher to the point where today it is one thousand times higher than where it was a little over 50 years ago. So the first reason gold is moving, which is very important to know when you are investing in gold, is that gold tends to anticipate the effects of monetary policy. Here's what I mean by that. If you take a look at this chart, this is the price of gold from 2014 through 2020. And you can see that the price of gold for years was volatile, but moved sideways, never being able to jump above that 1346 price. But starting in June of 2019, the price of gold broke out and started to move higher. Now, you may not remember this because it was about six years ago now, but mid to late 2019 was when banks started to run into problems. Liquidity in the financial system was drying up. And in September of 2019 was when the Fed had to start not QE in order to bail out the repo market. Gold began its move right before that and continued its move higher through the money printing that started in 2020, ultimately rising 50 percent before it topped out in August of 2020. Keep in mind, by August of 2020, zero inflation from the money printing had hit the economy yet. Prices of goods and services had not started moving. And yet the price of gold peaked and started to move down from there, ultimately moving sideways again for a couple of years. Again, this is because gold anticipates the effects of monetary policy. By the time inflation came around from all that money printing, the market was looking forward at the tightening the Fed was going to have to do. But gold had already made its move by the time the inflation came around. And we see a very similar pattern playing out right now from 2020 all the way through 2024. Price of gold moved sideways and tested resistance around two thousand dollars an ounce multiple times. And when it finally broke out starting in March of 2024, the move was anticipating the future results of monetary policy changing interest rate cuts and future quantitative easing in order to deal with the government's bloated spending and borrowing. And this is what is causing the new recent breakout from the mini consolidation pattern and testing of resistance that we've seen over the last couple of months, because now the odds of the Federal Reserve cutting interest rates has hit over 90 percent for their September meeting, despite the fact that inflation has not come back down anywhere near the Fed's target. Now, why did I say that this is important to know if you're a gold investor? It's because by the time the effects of monetary policy had actually hit the economy, gold will have already made its move, which means if you're waiting for inflation, you're going to be too late. Just like we saw in August of 2020, gold peaked before inflation hit, which means we likely still have room to run for the price of gold. But much of the move that's going to happen has probably already happened, which means if you're going to be trading it, you do want to be careful. OK, so if gold anticipates the effects of monetary policy, why is that? Well, we have to look at who the biggest buyers and holders of gold are. The answer is the people who do the monetary policy. So it makes sense that the price and the movement of gold is going to be in anticipation of those effects. When you look at central banks who set interest rates and print money, they now own more gold than U.S. Treasuries for the first time since 1996. For all of the 80s and all of the 90s, central banks were selling gold while they were accumulating U.S. Treasuries from about 2000 to 2015. That trend stopped, just moved sideways. And then starting in about 2015, the trend reversed and central banks started accumulating more and more gold and selling off their treasuries. If we want to take a look at this another way, we can look at gold compared to all other sorts of international reserves other than treasuries. Looking at things like the dollar, sterling, yen, the franc, the mark, the euro, renminbi and other, you can see again about 25 years ago, gold holdings finally bottomed out, moved sideways, and then about 10 years ago started moving upwards again. You can see gold holdings as international reserves are nowhere near where they used to be in the 50s and the 60s, but they're definitely moving higher again, taking a big chunk out of the dollar mainly. Well, you might be thinking, wait, hold on. I've heard dollar usage around the world is actually up. If you've heard that, you'd be right. The dollar share of international transactions topped 50% earlier this year, which is significantly higher than it's been for years. And this is as a percent of all currencies. So, yes, the dollar is being used more in global transactions, not less. But these two things together are perfectly reasonable. This is Gresham's Law in action. Bad money drives good money out of circulation. In other words, people will hoard the forms of money that store their value the best, and they won't get rid of it. They won't sell it. And they will get rid of the forms of money that don't hold their value. This is why you hold gold and you use dollars for payments. This is why you hold Bitcoin and use dollars for transactions. It doesn't make any sense. The people who say, oh, we need to see transactions start to be done in gold or transactions start to be done in Bitcoin for it to be money. You would not expect that until people no longer accept those old forms of money as payment. For instance, you for your wages, for the sales of your assets or your goods or your services do accept dollars as payment. But there might come a time in the future where you say, nope, I'm no longer willing to accept dollars as payment. You can pay me with something else like gold or Bitcoin or something else. But I will not accept dollars. Only at that time does a currency move from a medium of exchange and be replaced by something that has been serving as a store of value. In other words, a money's store of value function will be replaced by a superior form of store of value. In other words, between a money's two functions of being a store of value and a medium of exchange, the store of value function will be replaced first by a alternate store of value and its function as medium of exchange will accelerate as people try and use it as much as possible. Once people no longer accept it as payment, that's when the new store of value also becomes the new medium of exchange. Not before that, though. Now, keep in mind, I am not making the case here that just because the price of gold is going up quickly again and just because the dollar's usage in global transactions is accelerating and just because international reserves are seeing a higher percentage in gold versus dollars, I am not saying that I think dollars are on the way out anytime soon. But what I am saying is everything you are seeing happen right now is something you should expect to happen if the dollar was on its way out at some point in the future, even if that's decades down the road. People forget when we read history books of the collapse of Weimar Republic in Germany and the collapse of Rome and the dilution of their gold and silver coins. Those things took place over decades and sometimes centuries. Definitely not overnight. All right. Now let's get into some practical tips for anybody who wants to invest in gold and maybe doesn't know what they're doing because this is their first time. Number one, usually rule of thumb, it's best to hold the gold yourself. People say if you don't hold it, you don't own it. And for the most part, that's true. Unless you live in a situation where that would be unwise or unsafe. For example, you see all these gold bars behind me in my YouTube videos. I regularly talk about the benefits of owning gold. I do not keep any physical gold with me anywhere whatsoever. That would be unsafe for me and my family. I do, however, own a lot of lead and I do have that physically with me all the time. So if you are in a position where you are not able to hold the gold physically in a safe or in the ground or in your walls or whatever, then the next best thing to do is to keep it in a vault where it is allocated, segregated, insured, independently audited and in a country with no history of gold confiscation and a high degree of economic freedom. I'm going to say that one more time. You can replay this if you need allocated, segregated, insured, independently audited in a country with no history of gold confiscation and a high degree of economic freedom. And lastly, if you just want some price exposed. And lastly, if you just want some price exposure to what gold is doing, especially if your money is all tied up inside of something like a 401k and getting something like a gold ETF like GLD is going to be perfectly fine. The biggest hedge funds in the world use GLD. It's good enough for them. It's good enough for you. But there are plenty of others if you want a different gold ETF. And finally, if you want access to more insights like this, there are actually quite a few things I don't talk about on YouTube. And I send those out in my free newsletter. It's called Letters from a Heretic. So if you'd like to see me in your inbox every week, go ahead and click on that link in the description below and sign up. As always, thanks so much for watching. Have a great day.