Gold continues its push towards $3,000 per ounce. Has it risen too far, too fast?
One year ago, an ounce of gold could be bought for about $2,000 per ounce. Since then, the price of an ounce of gold has increased about 46 percent.
But is gold really 46 percent more valuable than it was just one year ago?
Gold’s price increase, in dollar terms, is more of an indication of the dollar’s loss of value than some newly discovered worth in the utility of gold.
Remember, the dollar has been used and abused by the U.S. government for many decades. It has been continuously overissued in the form of credit. Now claims on future productivity have piled up in the form of a $36.4 trillion national debt.
As a practical matter, there’s no way the U.S. government – and the American taxpayer – can ever pay back all the debt that is owed. The only two ways to renege on these obligations are by an overt default on debt payments or by the continued devaluation of the dollar.
Over the last 110 years, the U.S. government has repeatedly chosen policies of dollar debasement as its means and methods for fiscal management. This, however, is a very flawed way to manage the nation’s finances.
In a debt-based fiat money system, debasing the dollar means adding more debt. So, efforts to inflate away the debt, by issuing more and more debt, only postpone and compound the ultimate catastrophe.
The fact is the growth of debt has rapidly outpaced the growth of the economy. The economy simply cannot support all the debt that’s owed. Consequently, dollar debasement, via debt issuances, continues to be the problem not the solution.
Record Gold Demand
As we get closer to the ultimate end game – the rapid devaluation of the U.S. dollar and the loss of its reserve currency status in global finance – gold’s utility is of vital importance. Gold, remember, has no counterparty risk. Unlike government debt, it cannot be defaulted on. Unlike fiat money, such as the dollar, it cannot go to zero.
Physical gold can be bought and sold throughout the world. Its value is universally recognized. Gold also provides a way for central banks to diversify their financial reserves and reduce their dependence on the dollar. This is why central banks throughout the world have been loading up on gold.
According to the World Gold Council’s recently released Q4 and Full Year 2024 Gold Demand Trends report:
“Total annual gold demand hit a new, record high of 4,974t, driven by strong, sustained central bank buying and growth in investment demand. The combination of record high gold prices, and volumes resulted in the highest ever total value of demand at $382bn.
“Central banks continued to buy gold at pace in 2024, with purchases exceeding 1,000t for the third year in a row. Buying ramped up significantly in Q4, reaching 333t and bringing the annual total for central banks to 1,045t.”
The National Bank of Poland was the largest central bank gold buyer in 2024, adding 90t to its gold reserves. The remaining top 5 central bank or sovereign wealth fund buyers of gold in 2024 included, the Central Bank of Turkey (75t), the Reserve Bank of India (73t), the State Oil Fund of Azerbaijan (72t), and the People’s Bank of China (44t).
Wealth Preservation
Last year marked the 15th consecutive year that central banks have been net buyers of gold. These are the same central banks that issue fiat currency. They create credit out of thin air. They set interest rates.
Central banks also force their populations – including you – to use their bogus money. But at the same time, they’re buying and hording gold. Obviously, they recognize the inherent instability in modern debt-based money. They recognize that the current system is becoming increasingly erratic and that it will eventually blow up.
Central banks want to have a firm foundation of gold so they’re prepared for the inevitable financial collapse. When the value of all paper money drops to zero, gold will provide the cornerstone foundation for establishing a new system of money and for facilitating commerce.
For the same reason central banks hold physical gold, you should hold physical gold too. The purpose of holding gold is not to speculate on its price in the hope of getting rich. It’s to preserve your wealth in a universally recognized form of value that is without counterparty risk.
President Trump and the Musk led DOGE are shining the light on government corruption and waste. This is important. But we really won’t know how much of a dent this will make in deficit spending for several months, if not years.
Trump’s tariff policies could also ignite a trade war. This could have unpredictable consequences for currencies throughout the world.
We also know that the extensive consumer price inflation of the last four years is not over. The Bureau of Labor Statistics Consumer Price Index was released this week. In January, consumer prices, as measured by the CPI, inflated by 0.5 percent, and at a rate of 3.0 percent over the last 12 months.
This is but one more reason why it is essential to hold physical gold for wealth preservation. After that, there are opportunities for speculation…
Gold Fever
Gold, like other assets, is prone to speculation and mania from time to time. There have been periodic gold fevers throughout history.
The mania of the 1970s was legendary. Over the decade the price of an ounce of gold jumped from about $35 per ounce to a peak of $850 in 1980 – an increase of over 2,300 percent.
Then after slipping and sliding down for 20 years a new bear market bottom was formed in early 2000 around $270 per ounce. From there the price of gold ran up to a high of about $1,900 per ounce in September 2011. This amounted to a 600 percent increase.
Gold then sold down to a low in 2015 of about $1,050 per ounce. Then it clawed its way back to $2,000 per ounce by late 2023. Since then, gold has spiked up to its current price of about $2,928 per ounce – or a 178 percent increase since its 2015 low.
When compared to the two prior bull markets, gold appears to have more room to run. If your goal in holding gold is wealth preservation, then you shouldn’t pay too much attention to these price swings.
Nonetheless, we anticipate there will be a more favorable price in the coming weeks and months for patient gold buyers. Chasing prices higher is rarely a good strategy.
Moreover, if you’re looking to speculate on the price of gold, physical gold isn’t the way to go. This is where gold mining stocks come into play.
To be clear, gold mining stocks have nothing to do with wealth preservation. They are primarily vehicles for speculation. And when it comes to speculating in gold mining stocks, junior miners are where the most explosive action can be found.
How To Cash In On Golden Lottery Tickets
The VanEck Junior Gold Miners ETF (GDXJ) is up 67 percent over the last year. As of market close on Thursday (February 13), it trades at $52.55 per share.
However, several months before the last gold bull market peaked in September 2011, GDXJ hit $166 per share. So, presumably, if the gold fever stampedes into mining stocks, like it did during the last bull market, an investment in GDXJ could return double or triple from today’s prices.
Of course, it’s all speculation. A guess. A gamble. Perhaps an educated gamble. Certainly not something to bet the farm on.
Still, if you’re looking for an opportunity with big risks and potential for big rewards, individual junior mining stocks should get your attention.
If you look under the hood at what’s inside GDXJ, you will find its top five U.S. listed holdings are: Alamos Gold, Harmony Gold, Pan American Silver, B2gold, and Iamgold. Over the last year, as of market close on Thursday (February 13), these stocks are up: 101 percent, 117 percent, 102 percent, 5.7 percent, and 170 percent, respectively.
Continuing on down the holdings of U.S. listed companies are: Hecla Mining, Equinox Gold, Osisko Gold Royalties, Coeur Mining, and New Gold. As of market close on Thursday (February 13), over the last year, these stocks are up: 85 percent, 60 percent, 45 percent, 174 percent, and 165 percent, respectively.
These are great returns. Much better than technology stocks. Yet they’ve generally flown under the radar. By this, the real fever for gold could just be getting started. And within this list of mining companies, there’s bound to be a golden lottery ticket – or several – that will spike many multiples if/when gold fever races into mining stocks.
Your financial advisor would never recommend this. But if you want to speculate, and you’re feeling lucky, this list is a good starting point for finding a few golden lottery tickets to bet on.
As noted above, chasing prices higher is rarely a good strategy. Gold has started the year with a bang. Year-to-date, GDXJ is already up by over 17 percent. There are signs of being over bought.
Thus, it is very likely there will be a moderate shake out over the coming weeks and months. How to play it?
Don’t let greed get the best of you. Be patient. Be strategic. Use limit orders. Pick your entry points. If you do, you’ll stand a fighting chance at cashing in on a few golden lottery tickets before the cycle is over.
Best of luck!
[Editor’s note: Gold has already soared past $2,900 an ounce. But with this ‘backdoor’ strategy, you can gain exposure to over an ounce for just $20. The stage is set for a major gold boom. Don’t miss out—click here for urgent details on the #1 gold play of the year!]
Sincerely,
MN Gordon
for Economic Prism
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