Gold price is up over 15% so far in 2025, conquering the previously-unthinkable $3,000/oz level with no signs of slowing down. What does that tell us about the future of the U.S. dollar? Let’s take a look…
By Peter Reagan
Your News to Know rounds up the most important stories about precious metals and the overall economy. This week, we’ll cover:
- Gold passes $3,000 as forecasts upgrade to $3,500
- History reminds us of the true purpose of gold ownership
- Why New York doesn’t want to mess with its gold sales tax exemption
Gold passes $3,000 – and analysts are less surprised than you might expect
Perhaps it is the permanent all-time high gold prices, the levels that seem to set new floors, that cause the most awe. When prices reach intraday highs – crossing a line briefly, followed by an immediate pullback – those inspire less confidence.
Since gold had traded between $2,980 and $2,990 for most of the day, passing the $3,000 level could have been overlooked. The reception involved many analysts assuming a “not too surprised” stance as everyone wonders what gold will do next.
Despite being the first big bank to call for $3,000 gold, UBS is keeping their forecast limited to $3,200 over the next 12 months. For now.
Others like Macquarie have went the other route, saying that gold has enough room to reach $3,500 during this run. Assuming gold continues as it has so far, $3,300 would double the $1,650 low of summer 2023. Considering the momentum we’ve been seeing, $3,300 doesn’t seem like a stretch this year.
Should it happen, gold will have doubled in price in just two years. That’s astonishing – especially when we consider that gold isn’t primarily a growth asset.
While that’s cause for celebration for some, for others, it’s a sign that something is seriously wrong with our currency. Remember, a significant portion of the price of gold is a weakening of the currency used to buy gold. (That’s why gold price hits records in different currencies at different times.)
Since gold is still regarded as an accurate tracker of U.S. dollar devaluation, perhaps a deeper look into the greenback’s real erosion is warranted. Knowing its full extent, though, isn’t necessarily something the Federal Reserve wants. All modern currencies run on faith, and you don’t want to update your inflation gauges just so they can reflect structural weakness.
So we are probably confined to official claims that core inflation is barely above 2% and most definitely under 3%, as increasingly unrealistic as they sound. That would be 7.8% according to the pre-1990 official methodology for computing CPI – which, honestly, seems much more accurate…
Even those with comparably moderate takes on gold have a notably bearish outlook on the global economy. UBS, for example, feels that people might be underestimating what the trade wars could mean. They also note an increased level of global uncertainty and turmoil from other areas.
As for Macquarie, it’s worth mentioning that we’re a little early to their second-quarter target, but still there.
In straightforward terms, Macquarie’s analysts said that both private and official investors are buying the privilege of lack of credit and counterparty risk. And both sides are buying aplenty.
Importantly, Macquarie said that gold’s current run is giving no signs of bubbles or overheating.
Compared to when gold was reaching its 2020 targets, big institutional money is still largely absent from the market, and we do know that small-scale private bullion investment is yet to return in the West.
And with the way things are looking, every entrant into that group of bullion investors is one more person who understands fiat currencies are done for.
Gold demand shows us that people want stability in their savings
Value is obviously the first thing that comes to mind when we think about money. But should we leave stability too far behind?
We like to think of something like the U.S. dollar or even the pound sterling as stable currencies, even though they actually experience immense volatility even in the short term. Over any stretch of time, though, they are always on a downwards spiral.
It always pays to go back to the beginnings with gold, referring to the metal’s performance more than 200 years ago, back to when the nation was being founded. Views on the time in our history when gold was in the monetary system, which is most of said history, can surprisingly vary.
Despite unparalleled growth and currency stability, we’re sure some will argue that the computer beats the car, so the modern world needs a much more developed economic model to deal with much faster developments.
The ongoing interest in gold, and especially tokenized gold which is a tell-tale sign of digital investors wanting safety, shows us that this is not the case.
All that is being done now could still be done with gold being the basis of the financial system, it’s just that the currency issuers are too past it.
Gold price barely moved for all of the 19th century, rising annually only by around 0.05%. But, remember, periods such as these had gold going up and down due to supply and demand dynamics.
Even in a world of sound money, it very much can happen that there is an excess of currency compared to available goods and services. When that happens, prices go up.
So a $36 trillion debt should represent the biggest expenditure ever made on goods and services, yet we don’t have much to show for it. National growth compared to the 1800s is not worth mentioning – unless, of course, you measure economic growth in an inflated currency. As the dollar is devalued, the measurement of GDP in dollars rises as well. (That’s just how math works – by the same logic, you can be twice as tall if you simply measure yourself using “feet” that are six inches long…)
But the analysis of gold in that period means to highlight a very important thing, and that is stability.
Gold’s own price volatility has sometimes given the perception of a lack of stability. There are those who complain gold moves too little compared to other assets’ prices. But most people don’t buy gold because they want to benefit from volatility! They’re interested in the opposite.
Dealing in currency that only moves 0.05% annually must have been something, and it is doubtless that the older generations took things for granted.
And with good reason. Who could have imagine the Western financial system going so belly-up in just a few decades?
In referring to the 1800s, we’re counting up until 1933, when exchanging gold for U.S. dollars was first made burdensome for American citizens. The Great Depression was blamed.
The Bretton Woods Agreement from 1944 can be seen as a revaluation upwards, and therefore inflationary in nature.
Instead of using the current price or even an earlier one, the monetary authorities then saw it fit to revalue gold to its downside.
By 1971, it was out of the financial system completely from an official perspective, barring things like sovereign stockpiles and national mints.
Why those still exist and are swelling during the most modern time in monetary history is answer enough as to whether there is a broad need, more so than just desire, for gold.
What the yellow metal does can’t be replaced even after it has been purposefully turned into a speculative asset.
An ongoing campaign to “digitize” gold could both prove disastrous and a study into the most eye-catching proof that digital money, like paper money, can’t replace bullion.
New York’s sales tax exemption on gold comes at an interesting time
Are we seeing things if we tie New York’s latest piece of legislature, which aims to impose a sales tax on any bullion purchase of over $1,000…
…with the massive amounts of bullion that were flown in recently, allegedly all for COMEX delivery needs?
Either way, the nation’s financial hub doing this, especially in light of recent events involving gold bullion in the U.S., suggests a few things.
An analysis on CoinWorld immediately places New York next to the likes of Colorado, Florida, Lousiana and Ohio. Each has tried to reinstitute sales tax on gold and silver to a degree in the past few decades, and each repealed their attempt after consequences started to take grip.
What are those? Well, Americans are still free to purchase sales tax-free bullion from other states, which buries a lot of New York’s gold-selling business right away. In each of the mentioned states, there was a painful and lengthy unwinding as the sector’s struggles, along with money flowing out of the state in general, almost forcibly brought on a change.
This makes one wonder if New York has some kind of backup plan or is privy to seeing the strings that the rest aren’t.
It is New York, after all, and a decision like this probably wasn’t made haphazardly. But this is just speculation based on the environment.
The amount of states still imposing a sales tax on bullion is dwindling. It’s common for states to remove an existing one, but invariably head-scratching when an area tries to reinstitute it.
New York’s legislators must know it, so logic dictates they have something planned.
If not, New Yorkers can expect a moderately brief period of increased difficulty in purchasing bullion and some state turmoil before things are returned to normal.
Then, New York will probably be another state to join the list, perhaps grabbing place between Colorado and Florida with a tag saying: “Hey, even we couldn’t do it!”
