Gold demand and the missing buyer
Gold could reach $10,000 an ounce on its own. If large institutions jump in, it could run from $10,000 to $20,000 very fast.
Pension funds, endowments, and insurance companies hold about 1-2% of their money in gold; some hold none. If they moved from 2% (already high) to 5%, there is not enough gold in the world at anywhere near current prices to meet that demand. These institutions are always the last ones in. They follow, they do not lead. They move once the frenzy starts and the price gaps pile up.
The steady demand comes from central banks, which shifted from selling gold to wanting more, and from individual buyers worldwide.
India holds about 15,000 tons of gold, but almost all of it is owned by individuals. The Reserve Bank of India holds about 500 metric tons. Indian brides wear gold chains as wedding gifts, and that gold is their life savings - set aside for children's education, a house down payment, retirement, and healthcare. They use gold because they do not trust the currency or retail banks. Chinese consumers also buy independently of their central bank.
In Sydney, Australia last August, at the largest gold dealer and refinery in the country, in the central business district, buyers lined up around the block. Gold had already climbed from around $1,800 to a peak of $5,400 at the end of January.
Gold preserves wealth, not nominal gains
Gold mainly preserves wealth rather than adding purchasing power. For anyone on a fixed dollar income - a pension, insurance payment, annuity, or Social Security - inflation means you always lag and keep losing money. Social Security is adjusted each year, but after the fact: any 2027 raise is based on 2026 inflation, and inflation is likely to continue or worsen in 2027. You stay behind the curve. Gold keeps you ahead better, and it has upside that is not tied directly to inflation, so it can take on a life of its own.
Gold is not a currency today. Even a return to a gold standard would not mean carrying gold coins; it would mean dollars tied to gold in some way. A gold standard is not being predicted. As a store of wealth, gold serves very well.
Gold as a tool to beat sanctions
Gold is being used as money to get around sanctions by Russia, North Korea, and Iran. It is physical, non-digital, and cannot be traced. This is confirmed by work done for the CIA and the director of national intelligence.
A 400-ounce gold bar weighs about 28 pounds. Each bar is stamped with a serial number, the assayer who confirmed it was gold, the refiner, and the exact weight (a "400-ounce" bar might be 398.7 ounces). Melt the bar down, recast it, and put on new stamps, and all that record keeping is gone. A dollar bill carries a traceable serial number; recast gold does not. Gold is an element and a metal, not a "shiny rock" as some Bloomberg commentators call it. That makes it ideal for evading sanctions, especially for Iran.
Iran can ship gold to China for weapons, drones, manufactured goods, and semiconductors, and to Russia for weapons, since Russia is a major arms supplier. Russia can pay North Korea in gold for drones and missiles. This market completely escapes sanctions. It gives gold a price floor. It may be illegal from the US view, but those countries do not care.
Silver: harder to read
Silver slipped below $60 today, down from about $70 earlier this year. Many see $60 as the line in the sand. Silver is harder to analyze than gold because it is both a precious metal and store of wealth and a large industrial input. The monetary side can rise while a recession pulls the industrial side down. Right now both are rising. The precious-metal side is moving sideways after the January 2026 spike but will regain traction.
Silver is used in electronics, semiconductors, and catalytic converters. Hyperscalers building data centers need massive amounts of it, so the fundamentals are solid. Silver tends to follow gold with a lag. To read silver, watch gold; when gold gains traction, silver will not be far behind.
The Fed and election timing
The Fed's last hike was a blunder, and it should be reversed, but it will not be. Odds of another October hike fell from 67% to about 40% in one day, while December odds sit at 74%.
At the October meeting the Fed will stand pat and not raise rates. The next meeting is around October 29th; the election is Tuesday, November 3rd. The Fed will not raise rates four days before an election - Trump would walk down Constitution Avenue and burn the Fed down. The idea that the Fed is independent or non-political is a joke. It can act independently of the White House when it wants, but it works at the behest of pressure groups or a consensus of economists and other central bankers. At the December meeting, around the 18th, it will probably raise rates, since inflation numbers are not great.
Disinflation is not falling prices
The PCE number came out today. If inflation drops from 3.7% to 3.4%, headlines will say inflation came down. Technically it did, but it is still inflation - prices did not fall, there is no deflation. Prices keep rising, just more slowly. All the past inflation is still there and never went away.
In June 2022, year-over-year inflation hit 9.1%, the highest in 40 years; you have to go back to the early 1980s to find higher. A first mortgage around 1980 ran 13%, versus a parent's earlier 2.5%, but inflation was 15%. So the real rate was -2%, and the interest was deductible in the 50% tax bracket, pushing the real rate to about -8%. Borrowers were effectively paid to borrow.
Nothing repairs past inflation damage. Even if the Fed gets back to 2%, old purchasing power is not restored.
Why the government wants inflation
The "dollar debasement" story is wrong. The dollar is getting stronger - the euro is down from 116 to 113. So the end of the dollar is not at hand.
Publicly, the government says it does not want inflation. In fact it needs inflation to keep the debt sustainable. No one has to pay off the national debt and no one will; the debt just has to be rolled over at a reasonable interest rate. That is a challenge, but different from repayment. Deficits are not going away, so there will be higher debt and continued deficits.
The key metric is the debt-to-GDP ratio: national debt divided by GDP. It is now about 125%, which is dangerously high. The US has been there before. In 1945 it was about 120%. By 1980 it was 30%.
How did it fall from 120% to 30% in 35 years? Not by cutting debt - the debt went up three times, and the deficit tripled. GDP grew, specifically nominal GDP. Nominal GDP equals real GDP plus inflation. From 1977 to 1981, US inflation was 50%. From 1945 to 1980, nominal GDP grew ten times, up 1,000%. Debt and deficits rose, but GDP rose faster and lowered the ratio, making it sustainable. Much of that faster growth was inflation. That is a strong reason to own gold.
Inflation favors the debtor
Inflation is the worst thing for a creditor, because the dollars repaid are worth less. It favors the debtor, who owes the same nominal amount in cheaper dollars - hand back a trillion dollars, and good luck buying a loaf of bread with it. The biggest debtor in the world is the United States.
This sets up a conflict: savers need inflation controlled, while the government, as the biggest debtor, gains from inflating the debt away. Not much stops the government's interest from winning over savers.
If inflation went to 3%, the White House would pop champagne. But 3% inflation cuts the dollar's value in half in about 24 years, and in half again in another 24 - over a 48-year span, roughly a career from age 25 to the early 60s, 3% inflation cuts the dollar's value by 75%. At 4% or 5%, the dollar melts like an ice cube in your hand. It does not take 10% inflation, which is brutal, to erode the dollar badly; 3% does it over a career.
There are big winners in inflation. The way to survive it is to own hard assets - real estate, gold, silver. As dollars lose value, these assets rise, and that is how you stay ahead. The victims are people with no assets and people on fixed incomes who cannot adjust.
