Gold's record high: is that a bad thing for the rest of us?

 

As of late 2025, gold has undergone a historic rally, surging over 70% in a single year to reach record highs above $4,500 per ounce.

Is this a short-term or long-term "vote of no confidence" in the US and global economy? The role of any store of value and transaction (Money) is about trust, and increasing gold valuation could indicate decreasing trust in the US Dollar and government. A devaluing dollar is not necessarily a bad thing for the largest economy in the world, with access to commodities, technology and people. But it may create additional pressures when the next downturn comes.

The record price of gold does not mean the US is "broke". It means the US is anxious. Keynes might tell us that the economy is suffering from a lack of "Animal Spirits"—that spontaneous urge to action rather than inaction. 

The rally is a warning that investors are prioritizing the protection of past wealth over the creation of future prosperity, indicating a breakdown in the "state of confidence." It suggests that investors have lost faith in the marginal efficiency of capital—the prospective yield of building factories, inventing software, or investing in the future. They are "digging holes in the ground" (or buying those who do) because they cannot see a productive path forward.

There is a historical correlation (often called the Gibson Paradox) between long-term interest rates and the price level. When gold surges while real interest rates are low (as they are in late 2025), it suggests that the market expects a prolonged period of stagnation. The rally implies the economy is stuck in a liquidity trap, where even low interest rates cannot stimulate enough investment because everyone is too busy "hedging" against a future they no longer trust

What is Driving the Record Rally? The surge is fueled by structural and geopolitical factors

• Central Bank "De-dollarization": Central banks—led by nations like China, Poland, and India—are stockpiling gold at record rates.
• For the first time in history, the total value of global central bank gold reserves has exceeded their holdings of U.S. Treasuries, signaling a massive pivot away from the U.S. dollar.
• Monetary Policy Shifts: The Federal Reserve has transitioned to a "dovish" stance, cutting interest rates multiple times in 2025. Lower rates reduce the "opportunity cost" of holding gold (which pays no interest), making it more attractive than bonds.
• Geopolitical Flares: Renewed trade frictions (including major tariff announcements), the U.S. government shutdown crises in late 2025, and heightened tensions in South America and the Middle East have driven investors toward "safe-haven" assets.
• Fiscal Instability: With U.S. national debt surpassing $37 trillion, investors are increasingly worried about "currency debasement"—the loss of a currency's purchasing power due to excessive government borrowing and money printing

Does This Imply Risk in the Economy? Historically, a gold spike is a "warning light" on the economic dashboard.

• Recession Risk: Softening labor data (only 64,000 jobs added in Nov 2025) and falling oil prices suggest slowing global demand, which could be exacerbated by stock market correction
• Systemic Risk: The move away from U.S. Treasuries suggests that the world’s "risk-free asset" is no longer viewed as truly risk-free, potentially leading to higher borrowing costs for the U.S. government.
• Inflation/Stagflation: When investors flee to it, they are often signaling that they expect inflation to remain "sticky" even as the economy slows down (Stagflation).