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Gold's New Challenge

  • Writer: ACosgrove
    ACosgrove
  • Jan 8
  • 5 min read

For business owners accustomed to evaluating companies, gold can be puzzling.

 

Some look at gold and the see Keynes’ “barbarous relic,” nothing more than an inanimate piece of metal with no economic utility (most famously, Warren Buffett). Others look at gold and see its inert qualities, its role as a medium of exchange over millennia, and conclude that gold has a role as a hedge against monetary debasement (for example, Jean-Marie Eveillard). 

 

Our take: on the one hand, our clients are business owners and that gives us great appreciation for the well-managed, high-quality enterprise that can improve its economic utility and grow cash flow for decades. It’s always our preference to own such businesses. But on the other hand, as students of financial history, we are also sympathetic to the notion of gold as a monetary hedge: fiat currencies have repeatedly failed to stand the test of time; gold has not.

 

It wasn’t until 2021, in the wake of the U.S. government’s response to the Covid pandemic, that we began to actively encourage clients to consider gold as a hedge against an emerging, more emphatic version of monetary debasement. At first, we focused on bullion. More recently (2024), we also included gold miners in our calculus.

 

More than two years ago we shared this quote from an interview with Felix Zulauf, which remains as pertinent today as it was in 2023:

 

"…I think in the longer term, particularly in the second half of the twenties, what I described about rising interest rates, rising inflation, rising interest rates - and then a crisis, and in that crisis I think our governments will underwrite the economies. Unlike in the 1930s when they had a stable, gold-anchored currency, and they let the economy down, I think next time they will underwrite the economy and let the currencies go down, and then gold takes off in a big way."(1)

 

Perhaps investors are catching onto this notion. According to JM Bullion(2), the spot price per ounce of gold increased 64% in 2025 in U.S. dollar terms; whereas a popular index of foreign currencies increased only 9% against the U.S. dollar over the same period(3). If “let the currencies go down” is indeed our destiny, owning foreign currencies won’t help us nearly has much as owning hard assets like gold.

 

The gold miners are even more intriguing: an ETF representing a collection of the largest gold miners(4) increased more than 2.5x in 2025, a remarkable turnaround for an asset class that has been roundly out of favor for a long time. And yet, net share creation for that same ETF is down significantly (about 20% in the first half of 2025 per the ETF’s semi-annual report(5). Access to capital may be improving for miners but investors apparently remain skeptical.

 

Despite the runup in price for bullion and miners in 2025, we are maintaining our allocations to the yellow metal. Why?

 

While there are no consensus approaches for valuing assets like gold (unlike stocks and bonds), one method is to compare the purchasing power of gold to other assets. Here’s an example that involves the commodity complex relative to the Dow Jones Industrial Average index of stocks(6):



While this chart includes many commodities (not just gold), the pattern rhymes with changes in financial asset prices and gold prices, and we can infer that the ratio of stocks-to-gold remains low by historical standards even after the price run up in 2025. In fact, speaking on Chuck Jaffe’s Money Life podcast in September(7), Adam Rozencwajg (of natural resource investing firm Goehring & Rozencwajg) said that if gold were to return to its long-term average price relative to U.S. stocks, it would trade around $8,000 per ounce. And if, true to historical cycles, gold was to move from undervalued to overvalued in the coming years, gold might trade at $15,000 per ounce.(8)

 

And why might investors – and central banks – continue to warm to gold and curb their enthusiasm for financial assets?

 

  1. Domestic conflict (i.e., U.S. political and social instability)


  2. International conflict (we have written extensively about China’s expansionary impulse and ongoing challenge to U.S. hegemony across many domains including naval power in the Pacific)


  3. Financial profligacy (as negotiation of the new U.S. tax law showed, there is very little real appetite for financial discipline…and while dollars are always declining in value (due to inflation) there is now greater risk of that process accelerating)


  4. Monetary instability (policy makers remain heavily incented to use debt to engineer acceptable (politically tolerable?) nominal GDP growth outcomes, which is ultimately not sustainable)


  5. Global U.S. dollar leverage (as Lyn Alden has noted(9), there’s about $120T of U.S. dollar obligations in the world and only about $6T of U.S. base money – yes, dollars are leveraged 20x – also not sustainable)


  6. Central banks (non-U.S. central banks began diversifying reserves away from gold in the wake of the pandemic, an effort that appeared to accelerate after U.S. sanctions on Russia in 2022)


  7. Trade regime change (and not just U.S. ally response to tariffs - note that China continues to recruit other countries into trade agreements that do not utilize U.S. dollars for contract terms or settlement)


  8. Monetary regime change (past breakdowns in monetary regimes – e.g., 1971 “gold window” closing; Asian currency peg breakdown in the late 1990s – have resulted in gold prices moving significantly higher…talk of a new “Mar-a-Lago accord” persists today)


  9. Financial asset valuations (at around 200% of economic output, U.S. stocks remain vulnerable to a normalization of the relationship between stock prices and economic activity)


  10. Multiple “cycle of civilization” methodologies converging on the next 5-10 years as a period of tumult (to quote John Mauldin(10): “I’ve written extensively about cycles, drawing on insights from Neil Howe, Peter Turchin, George Friedman, Martin Gurri, Ray Dalio, and my own Endgame: The End of the Debt Supercycle.”)


  11. Gold miners still out of favor (ETF share creation is negative; gold may be garnering more attention but is not yet perceived as a “must own” asset)

 

It’s also worth noting that past cycles have resulted in gold miner stock prices increasing many multiples over the course of the (admittedly volatile) journey from cycle lows to cycle highs. The HUI index (NYSE Arca Gold BUGS Index(11) is the most recent example: that index increased 10x from 2000 – 2011.

 

So – would we rather own high-quality businesses than gold? Yes. Do we understand that gold mining is a low-quality business prone to boom-and-bust cycles? Yes. Do we understand that gold prices (and especially miners) are volatile and can move around a lot from year-to-year? Yes. And yet, for all the reasons cited above, gold has an important role to play – in one’s net worth - for the foreseeable future.

 

 

 

 

 

The views expressed represent the opinions of Bluestone Financial Advisors as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

 

Diversification and asset allocation do not ensure a profit or guarantee against loss.

 

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website.www.adviserinfo.sec.gov   Past performance is not a guarantee of future results.

 

 
 
 

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