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August
08
2025
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The Calm Before the Storm: Why $4,000 Gold
If the Fed needs to cut rates, gold needs to go higher One quiet week in what might be a surge for the price of gold to $4,000. It's no secret that gold has been trading sideways for a few weeks now. Some will say it isn't a bad thing. True enough – $3,300 gold is a pretty high price point, after all. Although not nearly as high as it might be relative to current levels of inflation, debt and overall money supply. In what is becoming a trend, the story is gold price dropped 1% to a four-week low because the Federal Reserve said they haven't yet made any policy decisions for September. Honestly, this seems just as nonsensical as "Trump is bad for gold" around the start of the year. I’m sure you know how that went. Why would gold’s price decline because the Fed isn’t lowering interest rates yet? Why would gold market participants even care about the delay? The Fed has the same three options as always: Cut rates, hike rates or do nothing. (Spoiler alert: “Nothing” is almost always the outcome of FOMC meetings.) But remember, we are already in a rate cutting cycle. That being the case, why didn’t the Fed cut rates? (This is the same question the President is asking often and frequently in press conferences and on social media.) Well, right now, the Fed essentially can't fiddle with interest rates the way they have for the past 50 years. I discussed fiscal dominance a couple weeks back. Analysts say that this rate cutting cycle will change the world, for the worse. In other words, "This is the big one." It's easy to see why. First, the Fed hasn't accomplished much despite what official inflation measurements claim. Inflation remains the focal point of our daily lives. You might walk into a store tomorrow, or order a meal from your favorite takeaway, and be told that they've increased prices yet again – for the 100th time since Covid. This is a global trend. I keep expecting grocery stores to change their price tags to say, "Hasn't risen in price since..." Maybe a year or two for some items, but way more often it’s "last month" or "six weeks ago." It's been this way ever since the lockdowns. This isn’t the kind of low-key, two-percent-more-or-less inflation like we saw in the 20 years before the pandemic panic. This is steadily rising prices – across the board. Today it’s potato chips, tomorrow it’s gasoline, little by little, chipping away at our purchasing power… Boiling the frog. Yet the Fed must cut interest rates. That’s obviously inflationary. And inflation has an obvious and powerful effect on gold's price. The rate cuts ahead, whether they come in September or October or even December, will very likely result in $4,000 gold at least. All market analysts knows what’s coming. All gold owners need to do is wait. Some firms, like WisdomTree, believe that the gold market is ramping up to hit $3,850. Wall Steet heavyweights Goldman Sachs, JPMorgan and Bank of America all hold firm with their $4,000 gold price forecast. I’ve watched the gold market long enough to know that surprises shouldn’t be surprising… Gold hitting $4,000 before Christmas? That’s my prediction. So take advantage of these days of sideways trading in the gold market right now. Because if I (and Goldman and JPMorgan and BofA) are right, when the big jump comes, you’ll be paying 20% more dollars for exactly the same proof gold Britannia. Just saying! If you already know you want to diversify your savings with gold, why not do so before the price goes up? The 1980s gold bull run vs. today – by the numbers The London Bullion Market Association (LBMA) recently published an analysis of the 1980s conditions compared to current ones to gauge where gold might be headed. Spoiler alert: We'll first jump to the end of their analysis before diving into the weeds. After addressing both heightened gold demand and (harder to quantify) geopolitical risks, they conclude:
Now, let me translate that into English for you:
To be fair to author James Steel (Chief Precious Metals Analyst, HSBC Bank), there is a little more nuance than that. Which leads us to my analysis. First: The 1980s were nothing like the present day. Consider:
Thus, comparing today’s bull run in gold price to the 1980s just doesn’t seem to make sense to me. I’d argue today’s bull run is closer to the 2005-2011 price explosion, which took gold from $430 to $1,900 – a 342% rise. Here’s my case: Similarities:
Differences:
As you can see, every factor against the comparison is also bullish for gold’s price! Even though I think the comparison is flawed, there are some interesting things in Steel’s analysis. In comparing the factors in 1980 vs now, what stands out the most is the U.S. debt-to-GDP ratio: 31% then, 121% now. So there is a massive, overwhelming and rapidly-ballooning government debt crisis. When Steel does address it, he seems to suggest that there is a way of "tackling" it. Tackling it how? I’m sad to say this, but I don’t see much hope there. Treasury Secretary Bessent’s 3-3-3 plan might work – but we’ve got to boost economic growth by 3% first. And we have to cut annual deficits to just 3% of GDP (today it’s 6.2%). I’m concerned that both governments and central banks have all but given up on dealing with debt. In fact, the only thing that makes the U.S. national debt look good by comparison is global sovereign debt, currently sitting at a truly shocking $324 trillion. This may not be a solvable problem! Admitting this means giving up on supporting the purchasing power of all currencies, from the dollar to the yen. I don’t like admitting this fact, but it's obvious to me: Hope is the main thing we had back in the 80s that’s in mighty short supply today. Individually, yes, we still have hope. In other people, sure. But hope in sound U.S. monetary policy, in fiscal discipline and in our economic prospects moving forward? Friends, I sincerely wish I had hope. During the 10-year bull market from 1971-1980, gold’s price rose 23x. I sincerely hope, for the future of our country, that today’s bull market looks more like that of the mid-2000s, with a mere 3.4x rise. China's new "anti-money laundering" laws restrict civilian gold investment China, well-known in the gold industry for lying about its official gold purchases and below-the-radar gold stockpiling, established a new rule. now requires a report on all citizens who buy gold in transactions of $14,000 +. Officially? This is an attempt to fight “money laundering” and “terrorism.” Which terrorists, you may ask, is China currently under attack from? (I’d argue the Chinese Communist Party is the primary terrorist threat to Chinese citizens…) Money laundering, at least from the Chinese government’s perspective, is the first step in escaping the country. So you can see why they wouldn’t want to allow that. Remember, this is the nation that prohibits export of all domestically-mined gold! That’s just one of the many, many restrictions the citizens live under. They can’t have citizens investing in foreign markets, either! Interestingly, this mandate comes from the Chinese central bank (People’s Bank of China or PBC). That’s when the story takes an even more interesting turn. Today, China may unofficially have over 30,000 tons of gold. This was accomplished by essentially nationalizing every gold-owning entity in the nation. Whatever bank or gold exchange you see in China tracks back to the PBC, which is just another arm of the Chinese Communist Party. That is the real owner of all the gold bullion in the nation. That’s how they may have amassed over 30,000 tons of gold (while Western analysts accept the 2,000 ton figure officially reported). China is obsessed with controlling all the gold in the nation. While seemingly encouraging gold buying among its population (and insurance companies), there is no question about one thing. The CCP, like ever government in the world, views civilian gold ownership as an attack on its credibility. This new law is a very thinly-veiled means of keeping an official list of every single person (in a country with over a billion people) who owns four or more ounces of gold. I think China is the likeliest nation in the world to decide one day that its citizens' gold ownership is counter-productive and implement some draconian measure against it. Maybe framed as a patriotic return to the gold standard? Look, you can call me cynical, but I believe that any government who wants to know how much of anything you own and why, it’s probably not for your benefit.
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Gold is holding steady – for now, but not for long. With the Fed cornered and global demand rising, $4,000 gold might be right around the corner. And if today’s bull market is like the 1980s run, how much higher will gold go?