It is time once again to take a look at the situation regarding precious metals and let me open by congratulating Gold Bugs.
BREAKING: Gold officially hits $3,600/oz for the first time in history.
Gold is now up +33% YTD, more than 3.5 TIMES the S&P 500’s return. ( The Kobeissi Letter)
In fact we get another perspective from the Financial Times only yesterday.
Gold price vaults past $3,500 to new record
We can also take a look at the explanation from it for this.
Gold prices jumped to an all-time high on Tuesday, surpassing a previous record in April, amid a weak dollar and expectations of a US interest rate cut this month.
The benchmark price of bullion surged past $3,526 per troy ounce, up 34 per cent since the beginning of the year.
As you can see it is on the move or the heat is on as Glenn Frey would say. However I am unconvinced that a 0.25% interest-rate cut makes much difference. Also for them everything seems to be viewed through a Trump lens.
Mounting concerns about the Federal Reserve’s independence after Trump put pressure on chair Jay Powell and moved to sack governor Lisa Cook have fuelled the most recent rally. Investors are worried inflation could rise if interest rates are cut because of political pressure.
They have put in an inflation klaxon but we know from looking at past performance that Gold’s record in this area is distinctly patchy.
A Bad Day for others
Step forwards the Financial Times from May 4th 2011 and here is Alan Beattie.
The continued run of the gold price is a global investment sensation. Recently it broke the $1,500 an ounce barrier for the first time, 30 per cent higher than a year ago. Surely this lays bare the extraordinary foolishness of Gordon Brown’s announcement, 12 years ago this week, that the UK Treasury would sell off some of Britain’s gold holdings?
For those unaware Gordon Brown sold some 395 tonnes of UK Gold reserves at US $275 an ounce. So it was already looking an awful decision? Not according to our Alan.
Actually, no. On this one occasion, Mr Brown’s decision was the right one. Let speculators go gambling on a shiny metal, if they want to. For most governments in rich countries, holding gold remains a largely pointless activity.
Even he had to do some number crunching though.
With hindsight, of course, Mr Brown could have gained a better price by waiting. At current rates, the $3.5bn the UK received selling bullion between 1999 and 2002 would have been closer to $19bn.
A mere bagatelle or something like that. A back of the envelope calculation gets us to around US $46 billion now. If that is also a mere bagatelle why were we guided towards the UK’s apparent Bitcoin reserve via a money laundering case where US $5 billion was presented as being significant?
Anyway let us move on from the hall of shame.
Central Bankers
We see a familiar pattern to what we have seen in bond markets. This is from the World Gold Council earlier today.
Global central banks bought net 10t in July based on reported data, a moderate net allocation compared to previous months (Chart 1). Despite this slower pace of net buying, central banks continue to be net buyers of gold even in the current price range.
In fact if you look at the chart referred to you see that central banks have been buyers in recent years.
The familiar bit is that they are buying at the top after selling at the bottom ( Gordon Brown was the headline act but there were other sellers back in the day). The order reverses their actions in bond markets where they bought at the top and are now selling at the bottom. Yet they are so rarely questioned outside these pages.
There are a couple of bits of intriguing detail for the year so far.
The National Bank of Poland remains the largest net purchaser of gold in 2025 with 67t y-t-d, though its gold reserves has been virtually unchanged since May 2025.
Plus this where the Turkish central bank has been doing what citizens were supposed not to.
The Central Bank of the Republic of Turkey, People’s Bank of China and Czech National Bank each added 2t of gold. The appetite for these three central banks continues, with the pace of gold accumulation incremental yet steady. Turkey has been a net purchaser for 26 consecutive months – since June 2023.
Interest Rates
To my mind the situation is much more complex here than presented earlier by the Financial Times. If we stay with official rates then even a 0.25% cut will leave Gold costing around 4% a year because it has no yield and that is before we get to the current headline act.
Treasuries fell, lifting US 30-year borrowing costs to within a whisker of touching 5% for the first time since July. ( Bloomberg)
Actually we did touch 5% on my chart and it is a reminder that many interest-rates are in fact rising as we are seeing longer-fated yields higher in much of the western world. So the real move is higher interest-rates which is to say the least awkward for an economics 101 view of this area.
Fiscal Issues
This to me is a driving force here with Gold looking like a sage haven relative to a constant stream of news like this.
Japanese ministries and agencies made a record request for ¥122.4 trillion in spending in the budget for next fiscal year. (Bloomberg)
I keep pointing out that our political classes are profligate and keep spending more. Here there is an actual President Trump influence as he too is a big spender. But there is also a nuance as President Biden was the same. These things have a psychological tipping point which 2025 so far has been.
This links to the interest-rate issue because if we stay with Japan we see that its 30-year yield touched 3.3% this morning and it was not that long ago that we were looking at it passing 3% and that being a big deal. So we have a drum beat and bass line here.
Inflation?
Here I think we have a different type of inflation to what is usually reported and by this I mean a larger money supply from all the fiscal expansionism. Or as Abba put i.t
Money, money, moneyMust be funnyIn the rich man’s worldMoney, money, moneyAlways sunnyIn the rich man’s world.
The rich man and woman are switching away from fiat money to Gold. But rather than specific events like tariffs I think it is a fear of this from all the fiscal incontinence.
What’s that coming over the hillIs it a monster? Is it a monster?What’s that coming over the hillIs it a monster? Is it a monster? ( The Automatic)
Silver
It has also been a case of Hi Ho Silver Lining.
Silver also climbed to a record on Tuesday, rising to $40.8 a troy ounce, a 14-year high. The metal still trades at a discount to gold relative to historical average prices, though it has narrowed in recent months amid growing interest from investors. ( Financial Times)
For those who have looked at economic history it was Silver that was the precious metal in the days of mercantilism. These days it has support via its using as an anti-infection agent and particularly for Solar power. Bloomberg was on the case back in October 2023.
Changes to solar panel technology are accelerating demand for silver, a phenomenon that’s widening a supply deficit for the metal with little additional mine production on the horizon…..Solar is still a fairly small part of overall silver demand, but it’s growing. It’s forecast to make up 14% of consumption this year, up from around 5% in 2014, according to a report from The Silver Institute, an industry association.
Of course that is bad news for Solar power on a day where in the UK is has other problems as it is only producing 3.5 GW at 11am as opposed to a “capacity” of 17GW.
Comment
In my opinion much of this is simple safe haven behaviour in the face of persistent fiscal deficits and the higher bond yields they are creating. Care is always needed at an all-time top for obvious reasons but so far there is no sign of our political classes catching on to the changed situation. A sign of this is how fiscally more prudent Switzerland seems set for negative interest-rates as money flows there. For it there is also the benefit from the rising Gold price. So we could easily see higher bond yields elsewhere driving Swiss ones even more negative.
