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Pushkin. The hottest asset on the planet right now is not some fancy tech stock or even a super-store-away meme coin. It's gold. People are desperate to get their hands on the stuff. It's up like 10% this year, even though some of the things we normally look at elsewhere in markets that tell us what gold is going to do are not really pointing that way. So today on the show, we're asking, what is going on with this thing?
This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist at the FT in London, and typically, I've got to say, I'm not much of a gold bug, but I bow down to the performance of this most ancient of assets. And speaking of ancient, guess who's back?
I should have seen that coming. It's Rob Armstrong off of the Unhedged newsletter. The only asset more ancient than gold. Rob Armstrong, financial commentator. Yes, I figured that joke might need work, but it turns out it worked pretty well.
But how are you doing? You've been away. You've been outside of New York City. I recently went to Arizona, beautiful Arizona, for an investment conference and talked to a lot of people who manage endowment and foundation money. Big money. And let me tell you...
They are as puzzled as the rest of us about what is going on in the world right now. You know, it's funny. People who run like a university's money, they like have an office of three people or whatever. Yeah. And they're running like a billion dollars or two billion dollars. Yeah. And they outsource all this stuff. So they find outside managers to do it. But still they have to decide which manager and what to allocate to which assets. And these people are all overwhelmed anyway. And this period of time is very overwhelming.
because they feel they should do something in response to all the weird changes going on in the world, but they don't know what it is. Yeah. So I say, welcome to the party, endowment manager. Yeah, you ask the experts, like, what's going on? And they say, I have no idea. You tell me. The scary thought is maybe they're figuring it out from this podcast. But this brings us precisely to the question of gold.
which is the asset which you buy when you feel uncertain about things, right? Yes. When bad stuff happens, gold goes up. When people are worried about the state of the world, gold goes up. Gold is up right now. I think we should be a bit more specific about that. It's only when things, historically, the only time gold really outperforms
your normal financial assets like stocks or bonds or whatever is when things are really bad. Like in proper crises is when gold really is a useful diversifier and hedge. When things are only mildly bad, it's actually a terrible asset to own.
But look, let's just talk about what it's done so far this year. As I mentioned, it's up 10% year to date. And like last time I checked, it's still only February. That's quite a lot. Yeah, it's a big move on top of earlier big moves.
Yeah, so it's up 40% since the start of 2024. We are now at something like $2,900 an ounce. Ye gods. That's a big number. It's basically doubled since late 2022. Yeah. It's a really impressive run. Very impressive. So when you're talking about gold, yes, very obviously it is a metal. Yeah.
It's not a vegetable. I'm no scientist, but I know this much. But it doesn't move around based on the sorts of things that other metals move around on because its industrial uses are not the main driver of the price. It's more a kind of- Yes, there are industrial uses for this stuff, but most of the demand comes from jewelry slash investment demand. And in some parts of the world, those two are the same thing.
But what was weird about the run in gold that went from, say, early 2024 to kind of the fall of last year is that the usual things that kind of moved the gold price, which are the real interest rate, that is the interest rate after inflation, and the dollar-
Because gold is priced in dollars, when the dollar strengthens, gold price usually goes down.
Those things which usually allow you to navigate the gold price, understand the gold price a little bit, those things were actually going the other direction. In other words, real yields were going up, increasing the opportunity price of owning gold, which should in theory make gold go down, and yet gold went up. And the dollar was getting stronger, which should create pressure on gold, and yet gold was going up.
Now, however, in this latest 2025 rally, at least those things are all going the direction they're supposed to go.
Real yields have come down. The dollar has quite surprisingly in recent weeks weakened when everybody thought it was going to strengthen. And gold has responded the way gold is supposed to respond. So yay for this tiny shred of economic logic in what is happening lately to gold. There is a little bit of logic, but there has been a break in the logic as well. So going back to your point about real yields. So the whole point of gold is if you hold it as an asset, it is a
pet rock, right? This thing does not pay you dividends like a lot of stocks do. It doesn't pay you any sort of return like a bond does and
It's just a nice shiny rock and it goes up in price or it goes down in price. And so normally when yields are high, when bond yields are high, particularly in relation to inflation, people say, I don't need gold in my portfolio. It doesn't pay me anything. I may as well own these bonds instead. Yes. But that is not what's been going on recently. So it's a bit of a head scratcher. Yeah. Yields are higher and real yields still are high. But we should make the distinction between the level and the rate of change.
And the level is still high, but, you know, the rate of change is at least in the last few weeks going gold's direction. Yeah. We should also talk about, you know, why else gold might be in demand right now. Right. And this brings us to every gold bugs favorite story, which is kind of the de-dollarization story. If the global reserve currency, which is the dollar...
is something you don't want to hold anymore, then the natural substitute, because goodness knows you don't want to hold Chinese renminbi, Canadian dollars, God help you, the euro, is to go to what is sometimes thought of as a currency in gold. Yeah. So is de-dollarization part of the story here or move away from the dollar part of the story here?
I'm not sure it's quite de-dollarization, but there is definitely something going on whereby official reserve holders, right, which is like this sort of catch-all term that encompasses like big sovereign wealth funds and central banks around the world and other kind of government-related stores of national wealth around the world. Mm-hmm.
One thing you can definitely see is that they have, particularly actually since the election of Donald Trump, they have pulled back from U.S. government bonds. And instead, so they're not saying, right, we're going to put our reserves in Chinese renminbi because that's got certain issues around it, around whether you can get the money out again.
They're not necessarily saying we're going to put our money into Eurozone government bonds because, again, the euro is a bit of a, you know, it's a problematic currency for those big long term managers of money because it's just it's got some structural flaws. You know, the euro is a big slice of these reserves, but still, we digress.
But what they are doing is saying, I don't necessarily need any sort of bonds in my portfolio here. I'm going to put the money into gold. And so we're seeing quite a lot of gold purchases from central banks around the world. And that is kind of interesting, right? Right. I mean, there's two related reasons a central bank might buy gold. One is that you think...
holding treasuries, US treasuries, which is the kind of natural way to hold the dollar, is no longer a good idea. Maybe you think the US is going to become a fiscal basket case or whatever. The other reason is because dollars and dollar assets come with strings attached.
If you accumulate as reserves, dollars or dollar-based assets, you are vulnerable to U.S. sanctions and you are subject to U.S. political control. So you might say, let me have a little gold in reserve so if I end up on the United States'
naughty list, I will still have an asset I can use to buy the things that I need. Now, the last big example of that happening, which is why stuff like real yields and the price of gold have diverged over the past few years, that the last time that really happened in dramatic fashion was 2022. Russia launched its full scale invasion of Ukraine and the US like pulled the cord, right? It said, okay, we're going to use
the power invested in us through the dollar being the global reserve currency to freeze Russia out of the dollar system. It basically used its currency as a weapon. Yes. Now, so other countries around the world look at this and they think, hmm, I don't want to be in the same boat. Now, one way to avoid being in the same boat is not to launch a war of aggression against the neighboring states. So... That's one strategy if you're a wimp. It's...
It's just not that difficult to my mind to avoid. But you do have a new president in the White House. He is a mercurial character, one might say. Yes, that's fair. He's a lot less predictable. Like him or not like him, you're going to use the word mercurial. Mercurial? Yes. Am I saying that right? I'm not even sure. Mercurial. Mercurial.
Who knows what he might do with this power in future? And so it does look like if you look at the timing between central banks around the world reducing their treasury holdings, central banks around the world increasing their gold holdings, there does seem to be a bit of a correlation. So it's not mad to theorize here that these two things are related. And there is a bit of a demand for gold out there from governments around the world that don't want to, as you say, get put on the U.S. naughty step. The World Gold Council. Yes.
provides us with their estimates of gold purchases, net new gold purchases by central banks. This is for 2024. And your number one gold buyer with over 80 tons of gold purchased, Poland.
Filling out the top five, which with quite a bit less than Poland, are Turkey, India, Azerbaijan, and China. And those are by far the biggest new gold purchasers.
China added 40-odd billion, I mean 40-odd tons of gold. Yes. It's important in shows like this to get the units right. You end up sounding extremely silly. Get your units right. Show you're working. If you look at those five countries, they are either close to, in the sphere of influence of, or are uneasy allies with China.
Russia. So Poland, of course, a close neighbor and a close neighbor of Ukraine. Turkey, long a kind of bridge between the European West and the Russian East. Azerbaijan, very much in that neighborhood as well. And both China and India have been an outlet for Russian energy, oil and gas under U.S. sanctions.
So their purchases of gold, heavy purchases of gold this year are not coincidental. Yeah. So the World Gold Council was saying that last year, so 2024, central banks added over a thousand tons of gold to their global reserves. And that's the third year in a row it's been over a thousand tons. And there's been like a massive step change from pre-2022 to post-2022. So a thousand tons a year has become the new normal really over the past three years. Yes.
But there's definitely something going on around sanctions proofing your reserves, which is just super interesting. And look, people buy it for different reasons, right? It's security. It is a store of wealth. It's a very emotional asset. It's a very emotional asset. And it's got a very long history behind it. So look...
Central banks buy it for whatever their motivations are, but the point is that they are buying in pretty substantial numbers. I should note, and have been for a couple of years now. It's been not just the last couple of weeks or months that central banks have started to marginally move towards gold.
But one thing that has really accelerated quite quickly is I'm sure you saw the story that we ran the other day from Leslie Hook, who writes about metals and commodities for us. Yes. She was writing that there's been a massive surge in shipments of gold to the US, creating a shortage of bullion in London. So there's a huge stockpile of this stuff in New York.
There's a real kind of, you know, sucking noise as oil goes from one place to the other. Exactly. And one of the analysts that she quoted in the story was saying there's a feeling that Trump could go across the board and impose new tariffs on raw materials coming into the US, including gold. And so people are trying to get ahead of that. And so all of a sudden, if you want to get your gold from the UK over to New York, then there's quite a long waitress.
waiting list, actually, to make that happen. Quite an unusually long one. It really brings out how different this asset is. Gold is very heavy. And when there is a financial, a global financial imbalance, such as an imbalance between the physical gold price in London and the gold futures price in New York, people actually take this heavy stuff
and put it on an airplane and fly it over the ocean. To me, this is just astonishing that in our modern day and age, we are closing what are essentially financial transactions by putting heavy metals onto planes and flying them across the ocean. And what is even weirder about this kind of New York-London arbitrage
is that in order to deliver gold to either close a contract or just a transaction in the two markets, the gold has to be in different shaped bars. So if you want to take London cash market gold and get it to New York, you first generally fly it to a refinery in Switzerland, melt it down into a different shape so it's the shape that COMEX exchanges will take in New York,
before you fly it. It just shows you this asset is not like the others. Yeah. The other ones, you're just like, make a phone call. I'll trade you this for that. Yes, okay, hang up phone. Whole thing is over. The only thing that has moved is electrons. Yes, a number changes on a screen. Done. There's no heavy stuff. There's no vault.
And so gold is just different. So normally, though, one of the things that's bugging me about this is that when the gold price shoots higher, that's because there's some sort of war, pestilence, terrible thing, horsemen of the apocalypse, something terrible is happening.
So it is sort of strange that you've got this massive run up in the price of gold. While stocks are still doing pretty well. Yes. And bonds are still doing relatively badly. Like there is no sort of giant flight to safety going on that would normally be associated with a rise in the gold price that's like this. But one of the other super weird things, everything about gold is super weird. But one super weird thing that's come up recently is
There's a column written by our colleague Gillian Tett who was writing about, I can't even get my head around this scheme. So,
The US is sitting on enormous amounts of gold, right? The US government. It has gold reserves just like other countries do. And for reasons that escape me, this gold is valued at $42 an ounce because that's what it was at when they, I don't know. Why is it $42 an ounce? Yeah, my understanding of why the number for the official reserves is $42 an ounce is that is a frozen price dating back to when Nixon forbade us to
for trading dollars with gold with the U.S. government. So that $42 nominal price is one of the many parts of Nixon's legacy. And now there's this idea that, again, for like weird accounting purposes, they might revalue it and say $42 an ounce. No, no, no, no. That'll be two
$2,800 an ounce. Thank you very much. And then all of a sudden it looks like the U.S. is lots richer and that this appears to be one of the reasons that's feeding into the rise in the gold price. Personally, I don't get it. Okay, so let me just read two brief paragraphs from Jillian's article because this stuff is so weird.
that you kind of have to write it down and then say it out loud. So currently, U.S. reserves are valued at just 42 an ounce in the national accounts, but knowledgeable observers reckon that if they were marked at current values, 2,800 an ounce, this could inject $800 billion into the Treasury general account via a repurchase agreement. That might reduce the need to issue quite so many Treasuries this year. This week, such chatter intensified after Treasury Secretary Scott Besant announced
Both pledged to monetize the asset side of the U.S. balance sheet while also promising to lower 10-year treasury yields. Now, let's just first be clear about what this is not.
This is not the U.S. government saying, we actually have all this stuff that's really valuable right now. Let's sell some of it to reduce the national debt. Because that would push the price down. Yeah, of course. That would add supply to the market and push the price down. So it can't be that. And the key word in that bit I just read is, key words rather, are repurchase agreement. So the idea here seems to be, which is of course a lending agreement, that the government...
would lend gold to itself in return for cash with an agreement to reverse the transaction sometime later, but the presence of that cash
would relieve the United States of the need to issue more debt. So this is purely an internal accounting game, perhaps not totally unlike quantitative easing, but never mind. And why this would affect the gold price in the real world as the US kind of moved pieces around on its internal chessboard, I have no idea.
But, you know, monetizing the US side of the balance sheet, the whole thing strikes me as odd and jejune. But what do I know?
Yeah. I mean, what I do know is that, like, you know, I've seen lots of commentary kicking around for the past couple of years saying the gold price is getting out of hand. It's got to stabilize soon. It's got to fall soon. And it just never does. It's just been on the up and up. The $2,100 level. We're now at $2,900. Yeah. The idea was, you know, people who buy it for investment or gold are price sensitive and stop buying it around like $2,100 historically. Nope. Nope.
Didn't happen that way. Not so much. Nope. Yeah. Yeah. And my expectation would be as long as like geopolitics stays unstable and as long as Trump remains mercurial, as we've decided we're going to call him, then my hunch would be that this official buying is going to
carry on. It's not going to get slammed into reverse. So, I mean, great times for gold bugs. Yes. And look, you and I can argue about whether gold is a proper asset or is really a currency or this or that until our faces turn blue. But if the world's central banks are buying the stuff, our academic objections really don't matter, do they? Yeah.
Yeah. It's almost as if we don't matter at all. Nobody is listening to us. Hey-ho, story of my life. Let's wrap it up there, Rob. We are going to be back in a sec with Longshot.
In the short term, there's going to be a lot of volatility. But in the end, I think what we've seen is that the underlying aspects of productivity may end up being the more profound driver than the fears of government impact from the fiscal or the monetary side, for that matter. To learn more about macroeconomic disruption, subscribe to PGM's The Outthinking Investor in your favorite podcast app.
Already now it's time for long short, that part of the show where we go long a thing we love or short a thing we hate. Rob, what you got? I have a pair trade for you, Katie. I'm going to go short the penny and long candy.
And here is why. Hard candies, specifically. So President Trump, as listeners may have heard, wants to get rid of the penny because it costs more to make a penny than a penny is worth. That doesn't seem to make sense. And as everyone knows, pennies are super annoying. We all have the physical manifestation of how annoying they are in the huge jars full of pennies we all hold in our houses. So I think get rid of the penny. Be gone, penny.
You are an annoying relic of an earlier time. But it also makes me think of the fact that back in my youth when I traveled to Italy when they still had the lira. Uh-huh. And there was like this thing where you couldn't make – the liras were so valuable that you like couldn't make precise change. Right. Or whatever anymore. So they would just like give you roughly your change and like a piece of candy to make up the difference. And like we have a transaction –
in the United States that, you know, doesn't round to the nearest nickel or whatever. I think we'll just cover the difference with hard candies, which is why we should be long the hard candy industry. Why don't you just pay with your phones like everybody else? Communist. That would be communist.
I am long tech bro drama. Yes. So Elon Musk says he wants to buy OpenAI for $100 billion with his mates. I don't know.
Sam Altman, who runs OpenAI, immediately snapped back with a, no thanks, but we'll buy X of you for $10 billion. And then he said on the television, this is Sam Altman, you know, I feel for the guy. I don't think he's like a happy person now. I...
I don't really care who gets to be the biggest, baddest tech bro. Although I do have some concerns around competition, proximity to power, that sort of thing. But I am very much here for the drama, the cat fighting, the bro on bro. Tech bros, the musical is going to be so awesome. Whatever happened to, wasn't Musk going to fight Mark Zuckerberg?
in a cage fight and that disappointingly never happened so if we can resurrect the tech bro cage fighting then i will pay all of my money to watch it on tv we live in a true golden age what a time to be alive if we are still alive on thursday we will be back in your ears then so listen up
Unhedged is produced by Jake Harper and edited by Brian Erstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher Forges. Cheryl Brumley is the FT's global head of audio. Special thanks to Laura Clark, Alistair Mackey, Greta Cohn and Natalie Sadler. FT Premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to ft.com slash unhedged offer. I'm Katie Martin. Thanks for listening.