Gold has surged to a record US$3,788/oz, rising 44% this year as investors react to mounting debt, persistent inflation and de-dollarisation. Thomas Becket, CIO at Canaccord Wealth, says the rush into gold reflects a structural shift: a flight into money governments cannot debase.
Gold hit a fresh all-time high on Tuesday of US$3,788.42/oz and is up 44.3% this year and 105.7% over two years. Gold mining shares have risen 135.3% year-to-date. The rally in many non-fiat assets has accelerated in recent weeks: silver is up 59.4% year-to-date and Bitcoin is up 16.3%. Why?
Ferguson’s law: governments have printed and spent too much money since the Global Financial Crisis. Excessive government spending became entrenched and the US has built up US$37trn of debt, with many developed nations in the same boat. Adam Ferguson, the 18th century Scottish enlightenment philosopher, warned against the risks of excessive debt. Economic historian Niall Ferguson revived these lessons with what he has coined Ferguson’s law: once a nation spends more on interest costs than defence, it has passed the tipping point of structural decline.
In 2024, the United States breached this threshold for the first time in modern history. The Trump administration talked of escaping the decline through reduction in spending but this is morphed into outrunning the debt through growth and stimulus, which is possible. It may also be the final gambit before the US too faces the last resort of bankrupt governments: the universal tax.
The universal tax: inflation remains high in the UK and the US and although pressures are arguably subsiding, there is great uncertainty. Over the medium to long term, another inflationary cycle is not just plausible but likely, particularly without fiscal consolidation – a drastic reversal in government spending habits.
Diversifying away from $: the rally in gold is about far more than gold itself. It is about fiat money. Central banks, sovereign wealth funds and private investors are steadily diversifying away from US dollars. This de-dollarisation is not a US dollar collapse, but a gradual erosion of its dominance. Since 2022, central bank gold purchases have quadrupled, lifting gold to the second-largest reserve asset globally, now surpassing the euro.
In today’s world of rising debt burdens, geopolitical fragmentation and macro uncertainty, the rush into gold is structural. It is a search for money that governments cannot debase. Gold has been the dominant expression of this theme.
Asset prices – FTSE/ Canaccord Wealth
