One of the biggest criticisms of gold as an asset is that it doesn’t have earnings. Gold doesn’t innovate or streamline its operations. Its value is wholly dependent on supply and demand.
Sometimes that’s a good thing…
Gold is a liquid asset, just like stocks. The day-to-day gyrations of any liquid asset have a lot to do with what investors are doing with their money…
Gold rallied during the second half of 2007, during the buildup to the Great Financial Crisis.
But cash gets crowned king when investors panic. So once the shit hit the fan in early 2008, gold tanked right along with stocks and lost 30% of its value over the next 6 months as investors went to cash.
Congress passed the $700 billion Emergency Economic Stabilization Act of 2008 on October 3, 2008. Gold prices bottomed a month later, in early November 2008, 4 months before the S&P 500 did.
Coincidence? Not a chance.
The market got a big liquidity injection at a time when corporate earnings were in freefall, and the outlook for banks was so bad that money-market funds couldn’t be trusted. Gold was the perfect place to park your money, exactly because gold doesn’t have earnings.
It’s Deja Vu All Over Again
It’s also not a coincidence that the S&P 500 is down over 10% since it peaked on February 19 and gold has rallied 9.5% since its February 28 low. Cash coming out of stocks has found a comfy haven in gold.
And it’s not just regular investors; central banks around the world have been adding to their gold holdings. The World Gold Council says that central bank gold purchases jumped 54% in the fourth quarter of 2024 from the previous year…
Bank of America says that emerging market banks currently hold 10% of their foreign currency reserves in gold, but the number should be 30%. That’s equivalent to 11,000 tons of gold that needs to be bought. At the current annual pace of 1,000 tons purchased by central banks, the gold bull market is just getting started.
There is one really good reason to believe that central banks could pick up the pace on gold purchases: tariffs.
If I ran a central bank in, say, India or China, I might not be so keen to do the U.S. a favor and keep buying Treasury bonds to fund America’s deficit spending.
I might be especially wary now that rumors that the administration is planning some kind of debt restructuring with Treasury bondholders, like India and China (a similar strategy to the one Trump used to strong-arm his investors back in the late ‘90s that ended in the bankruptcy of not one, but three Atlantic City casinos).
I might decide buying more gold instead of Treasuries is a pretty good idea…
American Stock Investor Loves Gold (and Silver)
My pal of 27 years and business partner, Christian “Hammer” DeHaemer, runs the American Stock Investor newsletter. He’s probably the smartest investor I’ve ever met. And I will admit I raised an eyebrow when he started recommending gold and silver nearly a year ago…
After all, tech stocks were still cooking, and the economy looked great… But I figured he knew what he was doing…
Sure enough, tech stocks are getting whacked, and two of Hammer’s precious metal miners are up triple-digits (116% and 125%); another one is up 84%, and his precious metals ETF plays are up 27% and 13%.
It is clearly not too late for gold (and silver), and in fact, the rally may be kicking into overdrive right now.
Learn more about Christian DeHaemer’s American Stock Investor HERE ($299 offer)
Cheers,
Briton Ryle
Chief Investment Strategist
Outsider Club
X/Twitter: https://twitter.com/BritonRyle
