Why Gold?

During May of 2025 we made the decision to add gold, purchased through an exchange-trade fund, to many of our portfolios. At the time, we did not purchase gold because we expected some imminent US Government debt crisis, or governmental collapse. However, we purchased Gold as a hedge or insurance policy against crisis. Over the past year Gold has risen considerably, rising from a price of $3,000 per ounce last May to a peak of more than $5,300 before selling off to approximately $4,000 per ounce this week.  This volatility reminds us that Gold can lose value.  Here is a quick reminder of why we purchased Gold and why we are holding on for now.

When we purchased Gold last year we outlined 3 key factors driving the price of Gold higher.  First, at the outset of the Russia-Ukraine war, the United State froze Russian sovereign assets, including holdings of US Treasury bonds held by the Central Bank 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.

Secondly, we purchased gold as a hedge against continued dollar weakness in light of the ongoing budget deficit.  We also anticipated that war with Iran would be a positive for gold.  Unusually, the Iranian war brought the opposite.  While the deficits have continued the dollar has rallied over the past month primarily due to the war in Iran.  War is usually good for gold, so what is different this time?  One potential answer is that the war with Iran increases the price of oil, this negatively impacts the global economy, but since the US is a net oil exporter, the dollar is impacted much less than the economies of Europe, Japan, and China.  This puts downward pressure on the price of gold.

Finally, we purchased gold as a hedge against tariff uncertainty.  During 2025 gold behaved as an important hedge during the on again-off again tariff crisis.  However, in February of this year, the Supreme Court ruled against the Trump administration, significantly reducing tariff use.  This ruling has largely calmed markets. Even though many tariffs still stand, the process has become much more measured and structured, calming markets.

We anticipate that gold will remain under pressure in the short term. However, we expect gold to continue its upward climb on central bank buying. The current level of $4,000 is an important level. If it holds, then we could see recovery in the second half.