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When prices are high and global conflicts destabilize the world, some investors start looking backwards—away from an uncertain future and toward the predictability of the past. And what’s older and more dependable than gold?
Last week, amid widespread geopolitical turmoil and a weakening U.S. dollar, the price of gold hit a historic high of $4,000 an ounce. This year has so far been gold’s best since 1979, a moment of instability so profound that it led to recession. Gold prices are much closer to a genuine “recession indicator” than, say, the resurgence of frozen yogurt or an uptick in Uber Eats orders. That’s because, over the past 50 years, spikes in the price of gold have typically been correlated with widespread inflation and geopolitical dysfunction. In 1979, amid double-digit inflation numbers in the United States and a global energy crisis, investors stocked up on the precious metal as a way to counter those shocks. In the years following the 2008 financial crisis, as investors lost trust in major institutions once seen as “too big to fail,” gold prices shot up again. And when persistent inflation was crushing the U.S. dollar after the coronavirus pandemic in 2020, gold once again soared.
The precious metal has long been considered a safe-haven asset, because, unlike the U.S. dollar, its inherent value isn’t determined by any state government. Although it’s probably not realistic for everyone to start piling into Diamond District jewelry shops and hoarding gold bars, gold remains an appealing, if old-fashioned, alternative to more contemporary investments: Its value stems from its shine and rarity, not its ability to produce a line of credit.
Some investors see gold as a standard way to diversify their portfolio. Others, stereotypically known as goldbugs, tend to be broadly skeptical about contemporary monetary policy. Just as investors in bitcoin, so-called digital gold, have historically skewed libertarian and anti-institutional, the most extreme goldbugs are betting against the system, doubtful that the Federal Reserve is capable of keeping the U.S. dollar strong. There’s also only so much of the metal lodged in the planet’s crust, compared with the dollar, which can be printed ad infinitum. At least until someone like Elon Musk figures out how to increase its supply by mining asteroids, gold will likely remain the doomer’s hedge of choice. Whereas a different sort of investor looks to get in early on promising new technological innovations, the goldbug doesn’t lose sight of what’s tried-and-true.
Gold prices have already risen more than 50 percent this year and are showing no signs of stopping. The story of today’s gold boom began in 2022, when Russia invaded Ukraine and Western governments decided to sanction the Russian central bank by freezing its foreign-exchange reserves. The scale of these sanctions was a reminder of why countries might want to own assets that can’t be easily frozen. Especially in emerging markets, central banks around the world “realized that the truly only safe asset” is gold, Daan Struyven, a co-head of Global Commodities Research at Goldman Sachs, told me.
The whiplash of President Donald Trump’s tariff spree this spring introduced new uncertainties for the global market. No nation or territory was off-limits (including remote islands inhabited only by penguins and seals). Trump’s scattershot approach has had clear consequences, especially for countries with fledgling markets. Kazakhstan, Bulgaria, and Indonesia are among the many nations now buying gold by the ton, according to World Bank data—ostensibly to insulate themselves from any future shocks caused by U.S. policy. Meanwhile, Struyven explained, the ongoing question of whether America’s own central bank will retain its independence could also be contributing to gold’s historic run, because “the gold price tends to rise when questions about central-bank governance rise.”
The other main driver of this price spike is less abstract. Some Wall Streeters are concerned that the value of the U.S. dollar will continue to erode as the national debt climbs and the Federal Reserve loses its grip on the currency. They’re making what’s become known as the “Debasement Trade,” shifting money away from the weakening U.S. dollar and into harder, more independent assets such as gold and bitcoin. Shrinkflation, stagflation, good-old-fashioned inflation—all of it means that your paycheck doesn’t go as far as it once did, and all of it is good for gold.
The mystery of the current gold rally is that the S&P 500 is also up. The stock-market index reached an all-time high earlier this month, which would seem to suggest that the American economy isn’t quite as close to the brink as the price of gold might indicate. But the reality probably has to do with a bifurcated market. Joe Davis, Vanguard’s global chief economist, told The New York Times on Saturday that this rare case of gold and stocks moving in a parallel upward trend has to do with “dramatically different” investor perspectives: The optimists are going with equities, and the pessimists are going with gold. In today’s economy, there’s room enough for both.
Another way to put it is that a bet on the S&P 500 amounts to faith in the fruits of modern industry: AI and renewable energy, to name a couple. A bet on gold is a recognition that all empires eventually fall, and a return to something much more ancient.
Related:
Here are four new stories from The Atlantic:
- George Packer: “I don’t want to stop believing in America’s decency.”
- The beacon of democracy goes dark, Anne Applebaum writes.
- David Brooks: America needs a mass movement—now.
- One era ends in Gaza, and another begins.
Today’s News
- The United States struck a small boat off the coast of Venezuela, killing six people, according to President Donald Trump, who alleged that the boat was carrying drug traffickers.
- Trump awarded a posthumous Presidential Medal of Freedom to Charlie Kirk in a White House ceremony today, on what would have been Kirk’s 32nd birthday. Last month, Congress designated October 14 as a “National Day of Remembrance for Charlie Kirk.”
- Israel identified four hostages whose bodies were returned yesterday under the U.S.-brokered cease-fire with Hamas and took custody of four more today, bringing the total number of returned bodies to eight. The bodies of 20 other hostages remain in Gaza, and an Israeli military agency said that it would restrict aid into Gaza because Hamas had been too slow to turn over remains.
Dispatches
- The Wonder Reader: Isabel Fattal writes about how to use regret instead of wallowing in it.
Explore all of our newsletters here.
Evening Read
The Drink That Americans Won’t Give Up Without a Fight
By Ellen Cushing
Coffee is in trouble. Even before the United States imposed tariffs of 50 percent on Brazil and 20 percent on Vietnam—which together produce more than half of the world’s coffee beans—other challenges, including climate-change-related fires, flooding, and droughts, had already forced up coffee prices globally. Today, all told, coffee in the U.S. is nearly 40 percent more expensive than it was a year ago. Futures for arabica coffee—the beans most people in the world drink—have increased by almost a dollar since July. And prices may well go up further: Tariffs have “destabilized an already volatile market,” Sara Morrocchi, the CEO of the coffee consultancy Vuna, told me. This is a problem for the millions of people who grow and sell coffee around the world. It is also a problem for the people who rely on coffee for their base executive functioning—such a problem that Congress recently introduced a bipartisan bill to specifically protect coffee from Trump’s tariffs.
More From The Atlantic
- The existential heroism of the Israeli hostages, by Franklin Foer
- America is sliding toward illiteracy.
- The Democrats’ heterodoxy problem
- The CDC’s weekend of whiplash
- Dear James: My guy friends are stuck in a rut.
- Andrew Ryvkin: Putin is not winning.
Culture Break
Remember. Diane Keaton’s quest for beauty left an imprint on American culture, Adrienne LaFrance writes.
Watch. Amy Poehler was the perfect host for the actual 50th anniversary of Saturday Night Live (streaming on Peacock). Although she can “snark with the best of them, she always radiates a palpable compassion,” Michael Tedder writes.
P.S.
I spent this past weekend reading American Pastoral, which I’ve somehow never done before, and there’s a sad moment when one character, a sort of crotchety older man, attempts to send a check to his son’s jilted ex-wife. In the accompanying letter, meant as an apology on behalf of his womanizing son, the man recommends putting all of the money straight into gold, because “the dollar isn’t going to be worth a thing.” This is the prototypical goldbug, the staunch cynic and old-school prepper who might come across as scolding and bitter but is usually right at the end of the day. If a character in a novel or film is broadly “into gold,” you already know quite a bit about them.
— Will
Rafaela Jinich contributed to this newsletter.
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