While much of the media is concentrated on bitcoin’s price and whether the U.S. will create its own bitcoin strategic reserve, that old reliable commodity called gold has been making its own moves. Gold hit a record high of $2,956.15 on February 24, 2025; it also outperformed the S&P 500 index in 2024.
Unlike cryptocurrency and other digital assets, there is less controversy about owning gold. In fact, much of the public owns it in some form, whether as jewelry, embedded in some of their electronic devices or even mixed into some specialty cakes. More sophisticated investors might choose to dabble instead in financial instruments like futures, options, certificates or other means to own or speculate on it.
That said, there are certainly caveats when it comes to investing in gold; some even say "Investing in Gold is Dumb." As just one example, as of this writing, gold is currently worth just below $3,000 per ounce, or 0.0625 pounds. I've heard an ounce in bar form described as being like a thick military dog tag. If you wanted to pay someone a million dollars in gold, that would be roughly 334 of those small bars (ounces). That's pretty hard to transport safely, is attractive to thieves and would probably set off security alarms everywhere.
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Over the past few decades since the Nixon administration lifted the gold standard to back the U.S. dollar, the U.S. has basically financed its spending through a combination of tax and tariff revenues from the national gross domestic product (GDP), with the deficit being funded by debt through the sale of Treasuries, both short- and long-dated.
Unfortunately, spending for social programs, military and defense, Medicare, Social Security, disaster relief and other government expenditures has outrun the GDP to the point where the deficit is significant. The official figure from the U.S. Treasury for the national debt as of March 3, 2025, was $36.22 trillion, with a debt-to-GDP ratio of around 123% for 2024. All the debt the U.S. has sold through its Treasury bills and bonds has to be returned at some point to the holders when they redeem the principal.
However, CNBC reports that for 2024 alone, the U.S. paid about $1 trillion just for the interest on the debt, and not the principal, largely due to higher yields on newer bonds. This was driven in large part due to somewhat lukewarm interest in buying U.S. bonds in light of the growing national debt. This is somewhat similar to a credit card warning a user about termination beyond the spending limit when payments are not made on time.
The higher coupon rate is the enticement but also comes back as a higher interest payment for the U.S. Basically, if potential bond buyers are skeptical that a government's financial situation is a bit risky, they will want a higher return on the money they lend when they buy bonds at auction. The coupon rate (or interest rate) is what the government bond issuer agrees to pay as interest to the lender. For the U.S., this is a large part of the interest payments it has to make on its debt.
So where would gold fit into all this? Some investors are starting to realize that governments worldwide are saddled with huge deficits and mounting debts, and while we are still far from a 1923 Germany hyperinflation scenario, some of the conditions are there. One potential cause is that without gold-backed money, some governments can be easily tempted to print more money by fiat (by decree), with only the “full faith and confidence in the government” to back that money.
Investors, corporate treasuries and the general public at large are starting to realize that the cycle of excessive borrowing to finance government expenditures, grants and aid of all kinds beyond taxable GDP and productivity might not end well. Overspending beyond GDP and tax collections is one way to get into a hyperinflation situation. Bond and currency holders then begin to wonder what it is they are holding.
Some are starting to realize the value of investing in commodities like gold, silver and oil that are constrained in supply. This is because commodities hold intrinsic value and do not derive their worth from the promises of debtors and institutions. For these investors, the choice of where to store value is the same as it often was during ancient times: They often default to that shiny, rare commodity metal called gold.
Related Content
- Does Gold Belong in Your Retirement Plan?
- Can a Gold IRA Counter Sticky Inflation for Retirement?
- Why I Still Won't Buy Gold: Glassman
- Gold Investments Continue to Shine
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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