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  • Writer's pictureRobert Baharian

This one chart...gold & debt

We have gold because we cannot trust governments - President Herbert Hoover, 1933

Soon after, the Emergency Banking Act was introduced, forcing all Americans to convert their gold coins, bullion, and certificates into US dollars. In 1973 the US finally abandoned the gold standard and replaced it fully with fiat currency (money issued by the government).


As kings and queens began to debase currency, as government began campaigns of overspending, humans have been hoarding gold for thousands of years, captivated by it's luster and scarcity.


In today's chart we look at the price of gold and compare it to the level of US debt.

What we can see is a remarkable relationship between the two. Gold is one of those assets that has a unique one dimensional valuation method - demand. Gold hasn't always been the basis for an international monetary system. In fact, a true standard existed for less than 50 years, and a lesser standard for another 50 years - 100 years.


Gold is generally seen as an asset to protect investors against inflation as well as provide financial stability amongst instability. As the US continues to grow it's debt as illustrated by the blue line in the chart above, history shows us gold, although more volatile, has followed a similar path to track the level of US debt since 1970. An even longer period of history shows us that gold has an inverse relationship with stability in the global financial system.


Could gold continue to soar beyond US$2,000 an ounce to US$2,500 an ounce? Sure. The precious metal is behaving as it has for thousands of years - this is nothing new as investors search for a real asset to fill the hole that is being dug. The challenge for investors is allocating a meaningful slice of their portfolio to make a difference. The smaller the allocation the less relevant it becomes. Too much allocated to the precious metal means no income stream, and the only way one can make any money on the thing is if the next person is willing to pay more. Speculation? Maybe. Conspiracy theorists? Maybe. A long-term asset to grow wealth? I doubt it.

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