The price of gold has more than doubled over the last two years, crushing the S&P 500.
There is one reason behind the price increase that everyone needs to understand because it explains so much else.
SIDEBAR: The FHFA officially released its new 2026 loan limits for Fannie/Freddie loans: Low-Cost Areas: $832,750 (up from $806,500); High-Cost Areas: $1,249,125.
I blogged about this a few weeks ago, using Rocket’s estimates (which were off a bit), but the blog’s other points remain valid: Conforming Limits Will Likely Jump By 2.36% Woohoo? Or, Uh Oh?
Back to Gold…
Gold did not become money or a store of wealth because it is “pretty.” It became a store of wealth because it is the perfect element for that role, and no other element has these properties: 1. Perfect melting point. 2. Easily molded. 3. Does not tarnish. 4. Lasts forever. 5. Limited supply. 6. Can’t be replicated. 7. Not too difficult to transport.
Most people believe that gold prices have gone through the roof for two reasons:
- Other central banks (particularly Russia and China) are desperately trying to get away from using U.S. Treasuries or dollars as reserve assets or stores of wealth. They do not want the U.S. to be able to control or sanction their activities, and they don’t trust the value of the dollar holding because of our fiscal irresponsibility.
- Investors themselves believe the dollar will crash because of our incredibly irresponsible fiscal situation – with multi-trillion dollar deficits.
The Other Reason Gold Prices Surged:
The other reason gold prices surged is this: Citizens in other countries are piling into gold because they don’t trust their OWN currencies.
Countries like India, Japan, Turkey, and China are in far worse fiscal situations than the U.S. is in (and so are most other major world powers).
And many countries restrict citizens from holding too many dollars. So, all the citizens can buy to protect themselves from their own crashing currencies is gold.
This Is the Big Takeaway:
As bad as the U.S. is fiscally, other countries are in much worse positions – and that is a major reason why gold prices have surged.
And this is also one of the reasons why the U.S. Dollar came roaring back in value recently from its lows earlier this year.
This is so important to understand: The value of the dollar and gold hold steady or increase because most other countries are even worse off than the U.S.
