Why Gold?

During May we made the decision to add gold, purchased through an exchange traded fund, to many of our portfolios. Let us be clear, we did not purchase gold because we expect some imminent US Government debt crisis, or governmental collapse. However, the behavior of gold is unlike any other asset, often rising when every most every other asset falls (and conversely falling when other assets are favorable). Gold as a ‘safety’ asset is well documented. It is a hedge or insurance policy against crisis. In the current environment we believe it is an insurance policy with the potential to increase in value even without a major crisis. Here are some of the key reasons we chose to add gold to the portfolio.

America’s political adversaries are buying gold

At the outset of the Russia-Ukraine war, the United States froze Russian sovereign assets, including holdings of US Treasury bonds held by the Central Bank of Russia. The freeze resulted in over $280 Billion in Russian foreign exchange reserves being frozen. Technically, United States law allows even more drastic action, including seizing, not just freezing, the US Treasury foreign exchange reserves of Russia. Other potential political adversaries, notably China, took notice of this action and began diversifying its central bank assets away from US dollars. It is likely that this is a secular shift as potential adversaries seek to lower their exposure to US dollar denominated and US led banking assets. We expect that this buying will put upward pressure on the price of gold.

The US deficit is becoming a problem

The good news is that the twelve-month Federal revenues rose to a record $5.1 Trillion over the past 12 months. The bad news is that the twelve-month spending rose to a record $7.1 Trillion resulting in a $2 Trillion deficit just in the last twelve months, adding to the $36 Trillion-dollar national debt, which has risen to 123% of GDP, a troublesome level. More concerning is the lack of political will in Washington to meaningfully curb spending, raising the possibility that congress will do nothing to curb spending until there is a debt crisis – or at least a mini-debt crisis. What might that look like? It would begin with a rise in interest rates as buyers of US Treasuries demanded higher interest. Such a crisis does not have to be a disaster, but there is potential for the dollar to fall and gold to rise in such an event.

Tariff Uncertainty

Tariff uncertainty has already resulted in huge market swings during 2025. While negotiations are ongoing, and while we believe the most likely result is a tense truce with most trading partners, there is still risk that negotiations fail. We are still in the 90 day “tariff pause” period, but Trump told reporters this week that “at a certain point, we’re just going to send letters out. And I think you understand that, saying this is the deal, you can take it or leave it.” During the April tariff crisis gold rallied as a safe haven.

Conflict in the Middle East

The proxy war between Iran and Israel is threatening to become a direct conflict, risking a wider Middle East conflict. While negotiations are ongoing for Iran to dismantle its nuclear program, they appear stalled, increasing the chances that Israel will make a preemptive strike. Such a strike could spike the price of oil, and depending on Iran’s response, risk a broader war in the middle east. We anticipate that gold would spike in such a scenario as investors seek safe-haven assets.

Given these key risks we made the decision to add gold to the portfolios. Certainly, there are scenarios where gold declines, but we believe overall that the addition of gold provides an important hedge against very real risks in today’s market.