Gold's Setting the Stage for a Grand Finale
Call it boring, but this precious metal is the asset to own. Here's why.
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Gold may have lost its luster, for lack of a better word, to its digital brethren, Bitcoin, but its performance is not shabby for a safe haven "boring" asset.
After consolidating from its lofty levels over the past few months, gold has once again broken out of the upper end of its recent trading range, breaking higher above $3,400. The precious metal is up 30% this year and closed up another 30% last year; it is seemingly becoming one of the most important assets to own in any portfolio.
Something changed for gold back toward the end of 2022, as it evolved into more than just a macro/dollar-based commodity or one linked mostly to jewelry demand from Asia. It has since then broken away from its traditional correlations and kept moving higher. It would seem the Russian-Ukraine war was the trigger that compelled global central banks to look at gold in another way, diversifying away and out of U.S. treasuries and reserve assets into something more sustainable and reliable. After all, they saw what happened to Russia as its foreign reserves got seized overnight after the Ukraine attack.
One of the biggest demand drivers has been China, as Chinese gold demand is skyrocketing. Chinese gold exchange-traded fund demand hit a record 45 tons in the second quarter of the year, up from 18 tons in the first quarter. This brings the total first-half of year demand to 63 tons, an all-time high. Total ETF holdings jumped 74% year over year to 200 tons. According to Goldman Sachs, China unofficially bought 15 tons in May on the London market, 8-times the officially reported number. China's rush to diversify out of U.S. Treasuries and into physical gold grows stronger as the thirst for hard assets continues. Global debt is a universal problem as global debt surpassed $324 trillion in the first half of 2025, according to a Reuters report due to more government borrowing and spending. We all know how indebted China is already, but this trend is heightened in places like U.S., Japan, U.K. and France as well. Governments have no choice but to print their way out of their budget deficits. In the U.S., this involves refinancing about $9.2 trillion of debt maturing this year, plus additional borrowing to cover the projected $1.9 trillion federal deficit. At rates closer to 4.5%, there is a bit of a buyers strike as the bond vigilantes will require much higher rates to compensate them for the risk they are asked to take. This is also one of the mains reasons why Treasury Sec. Bessent and Pres. Trump wants the Fed to lower interest rates so that it can be reissued at much lower rates, given the U.S. interest expense is already close to $1 trillion to manage the current debt and he needs room to pass some more of spending plans.
The Fed has a dual mandate; it has to keep labor market balance and contain inflation. For now, the data has shown signs of slowing down, but the U.S. economy remains resilient. The Fed has no reason to cut and it is still running about $25 billion a month of quantitative tightening, which means this is an additional $300 billion or so the U.S. Treasury needs to borrow to pay for those assets as they mature. Hence the public spat between the U.S. administration and the Fed continues. There is a case to be made for central bank independence, lest the U.S. turns into Turkey and inflation spirals out of control as governments never take accountability when it comes to spending.
All roads lead to the same conclusion: further debasement of fiat currency and more money printing, as there seems to be no way out. This is why gold is one of the only assets to own, more so than equities or bonds as it not only retains value against future inflation, but also appreciates in price as time goes on. Sometimes being boring is a not a bad thing, and the grand finale is yet to come.
