Fortune: Gold's Price Record is Driven by the 'Debasement Trade,' China, And Fear of An AI Bubble, Analysts Say
Article by Jim Edwards in Fortune
Gold broke a new record on Tuesday, cresting at over $4,000 per troy ounce. It was sitting at $4,055.30 Wednesday morning on Comex’s continuous contract index. It’s up more than 50% for the year.
At first glance, this makes no sense. Gold is traditionally a safe-haven asset that investors run to when times get tough. But U.S. GDP growth is robust, unemployment is low, and the S&P 500 is posting daily record highs. All of that looks like the best of times, not the worst of times.
So why is gold going through the roof?
Several factors are pushing the price higher:
- The “debasement trade”: Government debt in the U.S., U.K., Europe, and Japan is at such historically high levels that some investors no longer see bonds as a safe haven. So they have gone into gold instead.
- The U.S. government shutdown: America looks like a basket case right now and gold is a good way to ensure your money is not attached to dollar-based assets.
- China: Foreign central banks are diversifying their reserves away from the U.S. dollar, which has weakened by 9% this year against other currencies due to the political chaos in America. “The People’s Bank of China extended its gold buying streak in September for an 11th consecutive month despite record high prices,” ING’s Ewa Manthey said in a note to clients recently.
- AI bubble fear: Joe Davis, chief economist at Vanguard Group, put it perfectly: “We’re seeing a tug of war,” he told the Wall Street Journal. “You’ve got the S&P 500 pricing in an AI supernova, and you’ve got the gold camp saying ‘We’re going to have structural deficits, we have fiscal pressure in the U.S., and I need to manage that risk.’”
“The latest leg higher has been underpinned by the growing uncertainty over the .....