I was never a gold bug; I didn’t invest in either the metal or the miners. Then about five years ago I started buying a little.
That has played out well: gold has trebled since my early purchases. Now the question is whether it still has a place in a portfolio.
This month US national debt passed $40-trillion, or about 124% of GDP, with an interest bill of $1.1-trillion a year and rising. After social security, it’s the US’s second-largest expense. The interest keeps rising because the debt does — it has doubled since the start of Donald Trump’s first term — but also because of higher bond yields. As bonds expire the debt is not being paid; it’s just being rolled into new bonds. But with the 30-year at multidecade highs, you get that new bond at a much higher rate.
The US is not alone here. Of the G7 countries, only Germany has a debt-to-GDP ratio below 100%, at 64%.
The G7 are all seeing their bond yields rise, and they all have a primary budget deficit. In other words, even before the interest bill, they spend more than they get through taxes.
The solution is really very simple: cut spending or increase taxes. Ideally, do both. But no politician will do either, as that will get them booted out of office.
So what is the plan?
On the same day that US debt hit $40-trillion and the 30-year traded back at 2007 levels, US Treasury secretary Scott Bessent said the government (via the Treasury) would be doubling its purchases of 10- and 30-year bonds. This had the immediate impact of pushing yields lower thanks to what is essentially a new round of quantitative easing (QE), this time from the Treasury rather than the US Federal Reserve.
The markets’ immediate response was a spike in the gold price as the dollar weakened. And this is the longer-term outcome of the crisis of developed market debt. The first few rounds of QE largely worked. But that was in a low-inflation, high-growth era with low yields (remember negative bond yields) and without super-high interest payments.
How does one go bankrupt? Slowly, then suddenly. US inflation has been above target for more than five years, and the Fed’s focus is instead on lower rates rather than lower inflation.
These days the US acts more like Türkiye than the leader of the global financial system, wanting lower rates regardless of the evidence or the impact. So, in short, we have the US fiddling while its debt pile rises higher. This is the perfect investment case for gold, so the plan for investors remains to hold gold in a portfolio and add gold miners on weakness.