18 April 2025
Why Gold Is Going Up
In this and other videos, Chris says gold is "on a tear", while saying that he has been sitting on the sidelines for these last six weeks.
There are others who say that the gold price is rising because of institutional buying (by central banks and other institutional investors, who are selling their US dollars to buy gold) and that “retail” (the likes of you and me) has not joined in as yet.
They point out that if the job of gold is to balance monetary expansion (creating more and more money expands the money supply), then given all this printing since QE and so on, gold is “dirt cheap.” That's what some are saying.
How does this work? Why is gold going up?
It used to be that anyone with a dollar bill in their hand could go to the bank and exchange it for gold. It was like that until 1971, when Nixon had to take America off the gold standard - everyone was asking for their gold, Fort Knox was almost empty!
Of course, gold is being mined all the time, little by little, but that supply is more or less fixed, and now value has to match the hugely increased amount of paper money - what’s called “fiat currency.”
So imagine a world with one block of gold and one one‑dollar note. A dollar is worth one block of gold. What happens if you print another dollar? The block of gold now must be worth two dollars. Or if you prefer, a dollar is now only worth half a block of gold. The dollar has been devalued against gold, or if you like, gold has doubled in price.
With all this printing, people lose confidence in the dollar, don’t they, as it buys less and less in the real world. Gold is the store of value that people trust. When they want to buy a loaf of bread, they now have to pay two dollars instead of one. That’s inflation!
And just look at the figures: since the turn of the century, the amount of money in circulation has gone up tenfold, and - surprise, surprise - gold has gone up tenfold as well!
One basic reason for gold going up in price is that money has been printed out of thin air. In fact, you could say that it’s not that gold has gone up in price—it’s that the dollar has been devalued by all this “monetary expansion.”
Currency
This is another reason why the price of gold might change: currency. For example, in Indonesia, the rupiah is constantly losing value against the dollar. Gold is priced in dollars. So you need more and more rupiah to buy gold. Gold is getting more expensive in Indonesia simply because the rupiah is devaluing on the currency market.
Well, if you lived in Indonesia and were trying to save, would you prefer a rupiah in the bank or gold tucked under your pillow? You’d buy a bit of gold every month as part of your savings and investment plan, wouldn’t you.
Risk
Market risk. Chris is sitting on the sidelines. If you thought American tech stocks were now a risky asset to hold, you’d probably sell them and if you’re looking for safety, you’d maybe buy gold instead. Before, investors bought US Treasuries, ie government bonds, notes and T-bills (according to the duration), but at the moment people are worried about the dollar, so they prefer to store in gold.
Geopolitical risk. with all these sanctions and the threat of hot war, people are worried because conflict destroys value. You’d want to sell the assets that are in the line of fire and buy gold instead.
Three Reasons Why Gold Is Going Up
Why buy gold?
- Money printing: Devalues fiat currency - more dollars chase the same goods, so people lose confidence and turn to gold as a store of value.
- Currency hedging: If your local currency is losing value against the global reserve currency (the dollar), you’d rather hold gold than your home currency.
- Risk hedging: In times of economic or geopolitical crisis, gold acts as a safe haven. When uncertainty is high, people flee to assets that historically have been shown to hold value. Economiccrisis
0 comments:
Post a Comment
Keep it clean, keep it lean