“[Gold] could easily go to $5,000, $10,000 in environments like this.
This is one of the few times in my life
where it’s semi-rational to have some in your portfolio.”
─ Jamie Dimon, JPMorgan Chase CEO, 10/15/25
With the gold price touching $4,250/ounce as we write this letter, the end of the beginning of the current gold bull market appears to have arrived. Better late than never, Jamie Dimon and former PIMCO CEO Mohamed El-Erian are trying to explain why the price of gold has surged 60% year-to-date, with 2025 representing the best calendar-year performance (thus far) for gold since 1979.
We began providing our clients with gold exposure starting in 2005, when it was clear to us that a historic housing bust was coming and that a related major financial crisis was looming, requiring a U.S. government bailout financed by newly-printed money. The average closing price for gold that year was $442.50/ounce. Since then, the gold price has risen by almost 10x, with a couple of difficult pullbacks along the way, including an almost 30% decline in the price of gold during 2013, a year when the S&P 500 Index appreciated by more than 30%.
In the face of our material precious metals exposure, clients are asking us, “Where do you see gold going from here?” In the short term, our honest answer is that we have no idea. If gold can increase in price by 10% over a two-week period, it can also decline in value by 10% over a two-week period; our short-term crystal ball remains cloudy. We would add that gold seems overbought on a short-term basis, which means that it would be unsurprising if gold’s price were to have a correction of some magnitude or consolidate over a multi-month period. However, we entered the 2020s expecting gold to outperform all other asset classes (which it has), and we expect that outperformance to continue through the balance of this decade.
And we say that because, in the current environment, we are expecting continued Federal deficit spending largesse, financed by the Federal Reserve’s day-and-night dollar-printing machine, only at a far greater level than what occurred during the Great Financial Crisis (GFC). Besides an unprecedented amount of Federal deficit spending, we have additional reasons to remain long-term bullish on gold, even at $4,250/ounce, despite a few new risks we could not have fathomed back in 2005.
Indeed, we believe there are 10 good reasons that cause us to remain bullish on the price of gold, which we share below:
1. Foreign central banks continue to buy gold aggressively.
Before the GFC of 2008-2009, foreign central banks as a group were net sellers of gold. U.S. Treasury bonds were considered to be as good as gold or better, and central banks accumulated Treasuries as their primary foreign reserve asset. By 2009, central banks became concerned about the U.S. government’s response to the GFC, after seeing the U.S. government kick the proverbial can down the road by bailing out failing banks and avoiding the difficult decision to restructure the U.S. banking system. Foreign central banks have been net buyers of gold ever since, regardless of the price, and they have been net sellers of U.S. Treasuries since 2014. Then, in 2022, after the United States confiscated Russia’s U.S. Treasury bond holdings in response to Russia’s invasion of Ukraine, foreign central banks accelerated their purchases of gold as a reserve asset. We believe foreign central banks accelerated their gold purchases because they were and continue to be worried about what might happen to their U.S. Treasury bonds should their respective countries anger the United States.
2. Inflation remains persistent and seems to be accelerating.
The Consumer Price Index, our best measure of annual inflation despite its many flaws, has remained persistently above the Federal Reserve’s goal of 2% for the last five years, peaking at over 9.1% in June 2022. Moreover, we believe that inflation will likely re-accelerate soon, due to a depreciating dollar, high levels of fiscal deficit spending, significant trade tariffs, and declining interest rates. In environments where inflation is high and accelerating, investors tend to seek out assets that are scarce and liquid, and gold offers investors plenty of both qualities.
3. The relative geopolitical and economic power of the United States is declining
The U.S. dollar became the world’s reserve currency in the aftermath of World War II when the United States stood as the world’s only hegemon, both economically and militarily. Today, the United States’s share of global Gross Domestic Product (GDP) has fallen to just 12.7%, versus 35% in 1944 when Bretton Woods was signed and when most currencies were pegged to the U.S. dollar. In addition, the U.S. military seems to be pulling back from many of its global commitments, while its weapons systems have become increasingly dependent on a supply chain of rare earth metals imported from China, one of its principal adversaries. As the power of the United States has waned while China’s has waxed over the past several decades, countries have become more comfortable trading in local currencies without worrying about catastrophic economic or military repercussions.
4. Gold has become more useful as a neutral reserve asset.
Historically, international trade commenced largely in U.S. dollars, but today an increasing share of world trade is conducted in local currencies, with any imbalances settled in gold. Because gold is a naturally occurring metal, not a fiat currency whose supply of printed paper is controlled by any single government, it is trusted as a reserve asset by countries everywhere. However, it remains problematic that world trade is so enormous relative to the current value of gold that central banks own. We believe this problem is likely to be solved by central banks buying gold to add to their balance sheets (see Reason #1 above) and by the price of gold rising relative to everything traded between countries, which is exactly what is happening. For example, the gold/oil (ounce-of-gold-to-barrel-of-oil) ratio is currently over 65x, well above the average 15x ratio that existed before central banks resumed buying gold.
5. Gold is severely under-owned by Western investors.
Compared to Asian investors, Western investors prefer owning stocks and bonds to gold. Much of this preference results from the stable and positive returns that Western investors have derived from bonds over the past 40 years. Most investment managers as a matter of policy will not recommend a gold allocation to their clients, mostly because nobody else does so and it is professionally risky to stray too far away from the crowd. With gold’s price continuing to climb upwards, strategic allocation choices will likely change, but it hasn’t happened yet. Moreover, according to UBS, U.S. family offices have a strategic asset allocation to commodities of just ~1%.1 When financial advisors and family offices begin to allocate ~20% of their clients’ portfolios to gold, as Morgan Stanley’s Chief Investment Officer Mike Wilson just recommended for the first time last month, the demand for gold will necessarily increase markedly, and, with gold’s supply scarcity, we believe the price of gold will necessarily have to increase, too.
6. Physical gold stores in the West are low and declining.
Enormous quantities of physical gold have been moving from the West to the East for many years. As a result, gold ounces have been accumulating in China, India, and Russia, while gold inventories have been declining in London and in Switzerland, where institutional bars of gold have historically been refined and stored by Western investors. When physical gold stores become low enough, it is likely that the gold price will be squeezed high enough to persuade long-term holders of physical gold to sell. Such physical shortages have begun surfacing this month among certain retail investors, but not yet among institutional investors.
7. The Debt/GDP ratio worldwide has never been higher.
The United States, Europe, Japan, and China have record levels of indebtedness. For the United States, Europe, and Japan, it is a government-debt problem, whereas for China, it is more of a local-government and state-owned-enterprise debt problem. For all these countries, however, their indebtedness problems can be alleviated by depreciating their respective currencies versus gold. This natural alignment enables coordinated policy to support higher gold prices, accelerated inflation, and gradually improving debt ratios. It is likely that the secular top in the gold price will not be achieved until such debt ratios have declined significantly from current levels.
8. Trust is declining rapidly.
Trust is rapidly declining between the United States and many other countries, and it is also declining within the United States. This loss of trust extends to many government institutions, including the Federal Reserve, the U.S. institution primarily responsible for regulating the monetary supply and setting interest rates. The gold price tends to rise during periods of declining trust in the Federal Reserve. The Federal Reserve recently announced plans to reduce interest rates further, making the dollar less attractive relative to other currencies and to gold, likely resulting in another round of accelerating inflation that could further erode trust in the Federal Reserve.
9. The Trump administration wants a lower dollar
The United States has a large current account deficit because it imports far more from the rest of the world than it exports. The Trump administration is trying to address this in several ways, including encouraging other countries to allow the dollar to depreciate versus other currencies. Thus far in 2025, the dollar index has declined by about 10%, which means that gold’s performance in dollars has been 10% better year-to-date than gold’s performance in the currencies of other developed countries.
10. Gold remains inexpensive relative to U.S. monetary base.
Despite the rising gold price, gold remains quite inexpensive relative to the U.S. monetary supply. At the peak of the last gold bull market, the value of the gold owned by the U.S. government represented more than 120% of the monetary base in 1981, more than triple the long-term average of about 40%. By this measure, gold was clearly in a bubble in 1981, and its price declined significantly over the subsequent two decades. Today, the value of the gold owned by the U.S. government represents just 15% of the U.S. monetary base. Put differently, the price of gold could almost triple from the current price before reaching the historical average of 40%.
Having discussed some of the reasons we are bullish on gold, we want to make clear that gold is far from a risk-free investment. We see the primary three risks as being the following:
1. Bitcoin may make gold technologically obsolete.
An increasing number of investors are buying bitcoin and other cryptocurrencies as a store of value, considering it “digital gold.” While not tangible, bitcoin is scarce because its supply is algorithmically limited to 21 million (bit)coins, of which the majority have already been mined. Just as most people have opted for email over snail mail due to technological changes, it may be that bitcoin someday replaces gold as the world’s premier store of value.
2. Miners could discover a large new supply of gold
As AI technology advances at an increasingly rapid rate, it could someday become economically feasible to mine asteroids, the moon, or Mars for minerals, resulting in an enormous increase in the supply of gold, somewhat akin to the discovery of gold in the New World during the 16th Century. Such a discovery would result in lower gold prices, all things being equal.
3. Governments could interfere with gold investors’ ability to profit from a rising price.
Much like what President Roosevelt did during the Great Depression, the U.S. government could choose to confiscate investor gold. In addition, the U.S. government could apply more punitive capital gains tax rates to investors who sell their gold for a large capital gain.
Given the size of some of our clients’ gold positions, we are closely monitoring these and other risks. We view the risks mentioned above as unlikely, but it is nevertheless worthwhile to imagine scenarios that could prevent our clients from profiting from a rising gold price going forward.
It may be that we choose to trim some of our clients’ gold positions, or have already done so, not because we are so worried about these risks, but to rebalance a portfolio as our clients’ gold allocations have increased in light of a ~60% rise in gold prices thus far this year
*****
We are grateful for your continued trust in asking us to be the steward of your assets, now more than ever, whether you have been working with us since 2005 or just started within the last twelve months. We are constantly learning and evolving, even with long-held investments like gold where some clients have owned exposure going back multiple decades.
Sincerely,
Pekin Hardy Strauss Wealth Management
1 Source: UBS Global Family Office Report 2024.
This commentary is prepared by Pekin Hardy Strauss, Inc. (dba Pekin Hardy Strauss Wealth Management, “Pekin Hardy”) for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of any security. The information contained herein is neither investment advice nor a legal opinion. The views expressed are those of the authors as of the date of publication of this report, and are subject to change at any time due to changes in market or economic conditions. Although information has been obtained from and is based upon sources Pekin Hardy believes to be reliable, we do not guarantee its accuracy. There are no assurances that any predicted results will actually occur. The S&P 500 Index includes a representative sample of 500 hundred companies in leading industries of the U.S. economy, focusing on the large-cap segment of the market. The Consumer Price Index (CPI) is an unmanaged index representing the rate of the inflation of U.S. consumer prices as determined by the U.S. Department of Labor Statistics.