The 2025 Gold Rush - "Debasement Trade" or FOMO?

0:00 Hey everyone, it's Richard.

0:00 You're watching the plain bagel.

0:01 As you might have heard,

0:02 there's been a bit of a gold rush in the markets lately.

0:04 No, I'm not talking about AI stocks or Bitcoin, but this time actual gold.

0:09 Uh because the precious metal has seen its price surge year to date by over 60%,

0:14 reaching a new all-time high of nearly $4,400 earlier this week.

0:19 Riley, that's even extended to silver,

0:21 which itself has surged by a similar degree to new all-time highs.

0:25 And we've seen a real mania around the shiny metal.

0:27 People have been circling blocks lining up

0:29 outside of gold dealers in Australia and Vietnam.

0:32 Interest in buy gold searches have reached all-time highs.

0:35 I decided to crack this out of the uh costume box.

0:38 Uh even Donald Trump has gotten in on the action

0:40 accumulating gold himself on the walls of the Oval Office.

0:44 I'll be I've been informed that some

0:45 of it is just plastic spray painted that color,

0:47 which is a bit awkward to be caught with uh faking gold like that.

0:52 Uh by the way, this is a dollar bill.

0:53 I don't know if you saw that, but I'm going to take this off.

0:57 But amid all this euphoria about the shiny metal,

1:00 a fairly concerning narrative has been making the rounds

1:02 and gaining traction around why people are ultimately buying this asset.

1:06 The so-called debasement trade.

1:09 The idea that amid ballooning deficits, political turmoil,

1:11 and gold buying activity from central banks,

1:14 that the rise in gold's price actually reflects a world that's

1:17 preparing for the inevitable collapse or replacement of the US dollar.

1:22 that we are fast approaching the end of the old world order and quickly reaching

1:26 the beginning of the older world order

1:30 I guess because we're talking about gold here.

1:32 So which is it?

1:33 Are we simply seeing the latest market fad or are we

1:36 truly heading towards a new golden age for better or for worse?

1:41 Well, that's what we'll try to decipher in today's video,

1:43 to discuss gold as an investment class,

1:45 the different narratives around why it's reaching new all-time highs,

1:49 and some considerations worth going through before

1:51 you really subscribe to either story here.

1:54 A quick thank you to Brilliant for sponsoring today's video.

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2:04 Before hopping into it, let's start with a highle overview of why

2:06 investors generally buy gold in the first place.

2:09 If this is something that you're familiar with, you can

2:11 skip the section using the timestamps in the description down below.

2:14 But for the uninitiated,

2:15 the idea of buying gold as an investment probably seems pretty bizarre.

2:19 After all, gold doesn't produce any sort of cash flow or yield.

2:22 And while it does have those industrial uses

2:24 that gives it that sort of commodity value,

2:26 44% of demand is simply for financial purposes with roughly a fifth

2:31 of all gold ever mined simply being held by central banks.

2:36 So why is it that people park their money in this very specific precious metal?

2:40 Well, there are a few reasons for it.

2:42 For one, the market tends to view gold as a safe haven investment.

2:45 That is something that will retain or even

2:47 grow its value during periods of turmoil.

2:50 Historically, for example,

2:51 the precious metal has passed key price levels during periods of market stress,

2:55 passing $1,000 an ounce with the onset of the great financial crisis,

2:58 $2,000 during the CO9 pandemic,

3:01 and $3,000 earlier this year with Trump's initial tariff roll out.

3:04 It's also, of course,

3:05 fairly rare with gold's total supply only growing by about 2% annually.

3:10 And part of that is actually recycled gold.

3:12 So, it's not even all just new gold coming out of the ground.

3:14 So, because of that, gold is also viewed as an inflation hedge

3:17 or something that again will retain its

3:19 value when fiat currencies are losing theirs.

3:22 But by far the biggest reason why

3:24 gold gets this treatment is simply its history.

3:27 the mere inertia of having previously been treated

3:30 as a financial asset or form of money.

3:33 Something that goes back thousands of years

3:34 with it being widely coveted for jewelry

3:36 and religious institutions historically for its non-corrosive properties

3:40 and luster with it up until the 1900s

3:42 being used for coinage or to otherwise back the value of money with it even

3:47 today still being held by central banks

3:49 to help support the value of their currencies.

3:51 Now, of course, with developed countries having

3:53 abandoned the gold standard in the 1970s,

3:56 there's long been some controversy over the role of gold in the modern economy,

4:00 with some viewing it as a relic of a time long past,

4:03 much like sea shells or rice.

4:05 While others are adamant that even today,

4:07 it's the only form of money worth anything.

4:10 But this debate over gold is really nothing new.

4:12 So-called gold bugs or gold enthusiasts have been

4:15 rooting for its resurgence for quite some time.

4:17 But what's fueling the precious metal rally today?

4:20 What's brought it back in fashion?

4:22 Well, probably not this.

4:24 Uh, but Donald Trump has interestingly played a role in the price resurgence.

4:28 As mentioned, investors tend to flock

4:30 to the precious metal during periods of uncertainty.

4:32 And well, look around.

4:36 For one, there's the economic uncertainty.

4:38 As we all know, Trump's tariffs have been causing quite a bit

4:41 of upheaval for global supply chains uh for most of this year.

4:45 And recently, we've seen tensions reignite between China and the United States,

4:49 with Trump threatening a 100% tariff

4:51 against Chinese goods starting November 1st.

4:54 And while the boomound AI has certainly bolstered activity in the economy,

4:57 a number of analysts have been ringing the alarm

4:59 bells warning of a potential recession just around the corner.

5:02 with Goldman Sachs putting the probability of a recession

5:05 over the next 12 months at 20% as of September.

5:08 JP Morgan putting the odds at 40%

5:10 as of July and one UBS analyst putting the probability

5:13 at a staggering 93% as of September with some even

5:17 buying gold as a hedge against this supposed AI bubble.

5:20 The idea that with valuations being so high for AI

5:22 stocks and so much unsustainable activity in the space

5:25 that there's the risk of a severe correction

5:27 with some investors choosing to hide their money in anticipation.

5:30 But one of the main economic concerns being flagged

5:32 as driving some gold demand here is government debt loads

5:36 which have reached very high levels with deficits continuing

5:38 to expand and with interest rates still being fairly high.

5:41 The interest burden of that debt alone risks causing some problems.

5:45 Something that would only be exacerbated by a recession.

5:48 So that's the first thing.

5:49 There's a lot of anxieties around the state of the economy.

5:51 A second factor driving this gold demand has been the political uncertainty,

5:56 headlined again by none other than Donald Trump,

5:58 whose unconventional whiplash policies and actions

6:01 have raised concerns over America's

6:03 checks and balances and the overall integrity of the US dollar.

6:07 With there being particular concern over

6:08 Trump's targeting of the Federal Reserve,

6:10 with Donald Trump having publicly criticized and attempted

6:13 to pressure Jerome Powell to cut interest rates

6:15 and having attempted to fire Federal Reserve board

6:17 member Lisa Cook over seemingly unfounded mortgage fraud allegations,

6:21 with the intent there seeming to be to replace

6:23 her with someone more willing to follow Donald Trump's direction.

6:26 In addition to the concerns around the Federal Reserve,

6:28 there's also the government shutdown, which has recently become the second

6:31 longest in history with Democrats and Republicans

6:34 refusing to compromise on a spending bill to keep the government open.

6:37 Something that seemingly helped get gold

6:39 across the $4,000 mark earlier this month.

6:42 And importantly, it's not just the US experiencing political turmoil here.

6:47 Uh in France, the Euro zone's second largest economy,

6:49 we've seen the country go through four different prime ministers

6:52 in less than two years amid political divides in parliament.

6:55 With even the current prime minister having recently resigned only to be

6:59 later reappointed and with the appointment

7:01 of a stimulusfriendly prime minister in Japan,

7:04 there are concerns that the debt heavy

7:06 country will see further deficits in the future

7:08 with both these countries seeing their bond

7:10 yields increase representing weak demand for government bonds.

7:13 So with all this uncertainty, you can see why many investors have been

7:16 migrating to gold here as a safe haven asset.

7:20 But there's one other important buyer in the market

7:23 that's in part been fueling this rally, and that is central banks.

7:27 You see, following the abandonment of the gold standard,

7:29 we saw a general trend of central banks offloading their gold reserves.

7:33 With the US dollar ultimately replacing gold as a key reserve asset.

7:37 Over the last few years,

7:38 central banks have become the biggest buyers of the precious metal,

7:41 buying at their fastest pace since at least the 1950s.

7:45 With the past 3 years,

7:46 each seeing over 1,000 tons of bullion being purchased by the institutions,

7:51 with the total gold held by central

7:52 banks estimated to sit around 36,000 metric tonses.

7:56 In fact, you might have seen the headline that for the first time since 1996,

8:00 central banks now hold more gold in their reserves than US treasuries.

8:05 And some have speculated that's the central bank

8:07 mine activity that's ultimately spurring investors to jump

8:09 into the space with many retail investors getting exposure

8:12 via gold ETFs rather than actually owning the precious metal.

8:16 These investment vehicles offer share representations of physical gold

8:19 and have had a record year of buying activity

8:21 in just the first 9 months of 2025 with more

8:24 than $60 billion flowing into gold ETFs so far.

8:28 Albeit total assets in gold ETFs do remain below their 2020

8:31 peak when the pandemic was fueling a lot more holding.

8:34 So we really are seeing buying from all fronts here from institutions,

8:37 retail and central banks.

8:39 But it brings us back to the debate about what this all

8:42 ultimately represents with some again highlighting

8:45 that this reflects the ultimate debasement trade.

8:47 Currency debasement refers to the historical

8:49 practice of rulers slowly eroding trust

8:52 in their currency by mixing gold and silver coins with less valuable metals.

8:57 Something that's argued to have contributed to the collapse

8:59 of the Roman Empire in 476 AD.

9:02 even though that did technically happen 200 years after

9:05 the coin stopped having meaningful gold or silver content.

9:08 And as the name implies,

9:09 some have argued that with the current ballooning US debt load,

9:12 uh the weaponization of the dollar against Russia in 2022,

9:16 and political instability in general,

9:18 the US dollar is slowly being debased with many referencing the 10%

9:22 decline in the value of the US dollar this year alone,

9:25 the fact that the dollar's makeup of foreign reserves has been decreasing,

9:28 and of course, the surge in gold's value.

9:31 We've had a lot of big names adding fire to this narrative,

9:34 even if not directly supporting it.

9:35 Ken Griffin of Citadel, Ray Dallio of Bridgewater,

9:38 and Jaime Diamond of JP Morgan have all

9:40 highlighted the risks of the US debt situation,

9:43 noting gold's role to varying degrees in hedging against these risks.

9:47 So with these narratives, all this interest, and of course the price chart,

9:51 it's very easy to get caught up in this narrative.

9:53 And there is of course a chance that gold continues to rise in price from here.

9:56 But before you subscribe to the most extreme

9:59 narratives here around dollar debasement and the like,

10:02 there are a few things worth considering.

10:04 For one, while individual investors may of course

10:06 be buying gold for any assortment of reason,

10:09 there's not a whole lot of evidence that the debasement

10:11 trade is what's driving most market activity here.

10:14 In terms of the dollar being down this year,

10:16 we haven't actually seen much movement in the dollar index since April,

10:20 while gold has seen roughly half of its massive surge during that period.

10:24 And the dollar itself is still roughly flat from 3 years ago.

10:28 So that decline doesn't really explain gold's massive price appreciation.

10:31 In fact, if you price gold in terms of oil barrels,

10:34 you can see that even when you strip out the dollar,

10:36 the metal's value has surged dramatically.

10:38 We also haven't really seen any changes in inflation expectations,

10:41 suggesting that uh gold's surge in price doesn't

10:44 really reflect a basease scenario of runaway prices.

10:48 In terms of US Treasury bonds,

10:50 their yields don't really reflect this abandonment to the dollar.

10:53 In fact, treasury bonds have actually increased in price since May.

10:57 Also brings us to another important point

10:58 around the foreign reserves of central banks.

11:01 Well, yes, it is true that gold has replaced

11:03 US Treasury bonds in terms of value that has

11:06 more so to do with the surge in gold's

11:08 price rather than the quantity of gold held increasing meaningfully.

11:13 Remember, gold's price has more than doubled over the past couple of years.

11:16 So, it's not really surprising that its share of these reserve market

11:20 values has increased relative to treasury bonds which have been relatively flat.

11:24 And that's just treasury bonds, a type of US asset.

11:27 But US dollars continue to be the number one foreign reserve asset with there

11:31 being roughly 7 trillion in US dollars

11:34 held versus the roughly $5 trillion in gold.

11:36 Now, we are seeing the dollar's share

11:38 of total foreign reserves decrease over time,

11:40 and that's certainly been exacerbated by recent events,

11:43 but it's far from having been replaced at this point.

11:45 And there's also a really important point around

11:47 which central banks are actually buying gold here.

11:49 Because while headlines might give this impression that nations

11:52 around the world are rushing to buy gold here, that's really not the case.

11:57 The biggest buyers of gold year to date have been Poland,

12:00 Kazakhstan, and Turkey,

12:01 with China, India, and Russia also being notable buyers over the past few years.

12:05 But these countries don't really reflect global interest in gold.

12:08 According to a World Gold Council survey,

12:10 while the percentage of countries looking to increase

12:13 their gold reserves has been on the rise,

12:15 most central banks aren't planning to increase their gold allocation.

12:18 And those that are tend to be from emerging markets and developing economies.

12:23 So you are seeing a handful of countries aggressively accumulating gold,

12:26 some of which do have a very active interest in moving away from the US dollar.

12:30 And the percentage of countries interested has again been increasing.

12:33 We haven't seen as much buyin from the larger world powers.

12:37 And that kind of makes sense.

12:38 The reason central banks have foreign currencies on hand is

12:41 to allow them the liquidity to transact quickly when enacting policy.

12:45 And while gold is a fairly liquid asset,

12:47 it can still drag down the price to have to sell before doing these transactions

12:51 compared to just having US dollars or even

12:53 treasuries which can be borrowed against very easily.

12:56 And while it's great to hold an asset that's appreciating in value,

12:59 it might not be a smart allocation to jump

13:01 in after we've seen this volatile price appreciation.

13:04 Not to mention, it's a costly asset to store

13:06 and doesn't generate any sort of income while you're holding it.

13:09 And what's interestingly looked over quite a bit is while there's often

13:11 this debate of the US dollar versus gold or other alternative assets,

13:15 the US central bank is actually the one set to gain the most

13:18 from gold's price appreciation given that they

13:20 currently own the largest amount globally.

13:22 So, some initial thoughts around the debasement trade and why

13:24 you should be skeptical of this sort of overarching narrative.

13:27 Uh the second big consideration here is that while gold is

13:30 often treated by investors as this safe and secure store of value,

13:34 it's worth highlighting that historically that property hasn't always held.

13:39 It's easy to get caught up in the belief that because of gold's rarity,

13:42 its value will mathematically increase over

13:44 time as the dollar experiences inflation.

13:47 But in the past, there have been extended

13:48 periods where gold's value has fallen against the US

13:51 dollar with there being a 20-year period starting

13:53 in the 1980s where gold fell in price.

13:56 And something being scarce doesn't inherently draw demand.

13:59 Uh platium, for example, is a metal that's actually 30 times more rare than

14:03 gold that currently trades at a third of gold's price.

14:06 Because again, a lot of gold's demand is based on its historical inertia,

14:10 not strictly speaking, its scarcity.

14:12 And with the sharp increase in gold's price that we've seen,

14:14 there's naturally the risk of a correction.

14:16 Bank of America analysts have highlighted that this sort

14:19 of price movement has only occurred three times before historically,

14:23 each of which were followed by 20 to 33% declines.

14:26 And at least one of those declines

14:28 was actually fueled by central banks themselves.

14:30 A sell-off that only ended when they signed the Washington agreement,

14:34 agreeing to limit how much gold they would sell.

14:36 And while it's certainly too early to call it a reversal,

14:38 we have already seen the middle drop over

14:41 5% from its peak reached earlier this week,

14:43 demonstrating that this safe haven asset can get

14:45 quite volatile when people are rushing into it.

14:48 But it brings us to the ultimate question,

14:49 Richard, where does gold's price go from here?

14:52 Uh to which I would respond, I have no idea.

14:55 Again, as mentioned, hopefully it goes to emphasize that the price

14:58 of the asset is really based on future demand trends,

15:01 which are hard to determine.

15:02 If we see a cooling of the political and economic environment, or interestingly,

15:06 if we see rising yields,

15:07 which itself could demonstrate a weakness for US treasuries,

15:10 those are all factors that have been highlighted as things

15:12 that could lead to a cooling of gold prices.

15:15 And with gold price surging amid a seeming perfect storm of factors,

15:19 the reversal of any one of these things,

15:20 whether it be a trade deal with China or a reopening of the government,

15:24 could contribute to a pullback.

15:26 But the truth is that we just don't know where things will go from here.

15:28 Whether the political situation will continue to heat up

15:31 or if we see agreements around tariffs and trade deals.

15:34 Because there's so many factors at play,

15:35 it's impossible to predict the demand trends for something like gold over time.

15:40 And historically, you can see that demand has fluctuated quite a bit.

15:43 Now, it's not to say everyone buying gold right

15:44 now has this sort of doom and gloom expectation.

15:46 Some are just buying it as this hedge against tail risks,

15:50 something that they're willing to spend the money and potentially lose

15:52 it for the sake of just offsetting any sort of, you know,

15:55 catastrophic event in the US.

15:57 But my point is not to argue that gold's price

15:59 won't increase or that it's certainly going to decrease from here,

16:02 but rather just to highlight the risks given that many

16:04 people view this as the ultimate store of value,

16:06 something that over time has maintained its

16:08 worth when that hasn't been a guarantee.

16:11 Thank you for watching.

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17:29 And thank you guys for joining me today.

17:31 I hope you found this video helpful.

17:32 If you did, please do make sure to like, subscribe, all that good stuff.

17:34 It does help the channel tremendously.

17:35 And let me know your thoughts on gold.

17:36 Whether you think it's a relic of the past or you

17:39 think it might beat out the dollar as the top reserve assets.

17:41 Personally, I'm hedging my bets with the uh the golden dollar dollar bill chain.

17:47 This was like five bucks from Amazon, but I'm getting my money's worth.

17:49 Thanks again for joining me and as always, be safe out