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Debasement Fears or Meme Fever? What’s Driving the Gold and Silver Rally
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Welcome to Money for the Rest of Us, this is a personal finance show on Money. How it works, how to invest it and how to live without worrying about it. I'm your host, David Stein. Today is episode 541. It's titled Debasement Fears or Meme Fever. The Gold and Silver Rally. As I record this on Tuesday, October 14, 2025, gold just hit another record high at 4,4133 dollars per ounce. That's up 55% year to date. The best start of the year. Since 1979, silver has exceeded $50 per ounce. Also a record of 65% year to date. I saw a quote in the Financial Times this morning from Kenji Onuki. He lives in Japan. He's a 40 year old director of an architecture firm. He made his first first purchase of gold ever, a gold bar. He said, I thought it was important to have something that physically exists, something you can actually hold in your hands. That quote reminds me of an episode we did back in 2021. Own something real. This morning as I ate breakfast I was looking at Bloomberg and there was an article titled the great Debasement debate is rippling across global markets. The idea of debasement that the fiat currency is worth less over time compared to real things such as gold. Now I've owned gold coins since early 2015 after I released episode 37 on gold. It was gold without the hype and politics. We last took a deep dive into the long term bullish case for gold in episode 431 which we released in May 2023. In that episode I talked about how there was more and more debt, more financialization and a greater risk of contagion, a greater risk of a breakdown in trust. And when bad things occur, people want to own something real, something simple, something with history. And that's gold. Earlier this year we released an episode with Max Belmont. This was part of the FEG Insight Bridge series. Max said that that gold is the inverse of confidence. When investors are feeling less confident about the world, they own gold. And that's what we've seen. There's a contagion right now. The gold price, what it's worth, its exchange value relative to the dollar has gone up because there is no use value for gold. It's so precious that it's used in jewelry and it's used to just own, to hold in your hand, own something real or to store away in a safe. Gold is scarce, rare and beautiful. And so when we think about the long term bullish case for gold it's that as the financial system, as the economy gets more leveraged, more unstable, that's where gold shines. But we don't know when that will be or how high the gold price can get. Now the, the, the term debasement, this was referenced in the Bloomberg article, comes when rulers such as King Henry, Henry VIII and Narrow diluted or debased the gold in coins with cheaper metals such as copper. And so they were no longer pure gold coins. Now if you've ever held a, a gold coin in your hand, a Canadian dollar, they're, they're, they're absolutely stunning. Now back in May 2023, after going through the long term bullish case for gold, I said I don't want any of those things to happen. The lack of confidence, the contagion. I said I would be perfectly content if gold stayed around $2,000 per ounce for the next decade. Here we are three years later and it's doubled. The time gold was about 5% of my investable assets. Now given the increase, it's up to 9%. And there's a part of me that says I'm ready to take some profits. But one of the challenges with selling gold, it's a collectible and so the capital gains tax rate is 25%. And then I've already taken profits in bitcoin this year and I've donated ether to charity. And so I've sort of maxed out my capital gains appetite. And yet I'm wary when an asset class is up 50%, particularly when we look at what is driving the return. Now back in May 2023 we talked about how central banks view on gold had started to change, that more and more central banks were accumulating gold as part of their reserves and they've continued to do that. About a thousand additional tons of gold per year was bought by central banks. Central banks around the world own 36,000 tons of gold. One of the interesting things about gold is it doesn't ever go away if it's it once it's mined, because you can't really destroy it. There's about 216,000 tons of gold out of the ground been mined. 17% of that is owned by central banks. Two thirds of that 216,000 tons has been mined since 1950. But the supply itself only grows about 3% per year. Now central banks have always owned gold. The US Federal Reserve is the largest holder of gold with over 8,000 tons. But it's inconvenient. It's inconvenient for us to own gold, you have, you have to keep it safe, keep it in a safe deposit box at a bank if you actually own gold bullion or gold coins. And it's highly political. So it's pretty easy for a central bank to add to their dollar reserves or the reserves of other fiat currency. But they don't want to move the gold price. And then if they start selling gold, it becomes, they all. Well, most, at least the US does. It publishes its, its financial statement, the US Federal Reserve, and it shows if there's a change to the amount of gold that, that it owns. So it's not necessarily easy to get rid of it. But what has changed with, with central banks, especially with Russia invading Ukraine, is financial sanctions. The Russia's assets were confiscated and gold is a really a way to hold assets apart from the financial system, which has been one of our, our views to have a pocket of independence away from the traditional financial system. And owning gold coins allows for that. So central banks have been buying about a thousand tons of gold per year. If we look at the supply of gold over the last few quarters, typically there's around 1200 new tons of gold in terms of new supply, about 900 tons due to mining. But then there's around 300 or so tons for just recycled gold. And that's about a 3% increase year over year. Surprising though, when we see this, this 50% jump in the price of gold year to date, and that's about 50% in the past year. And look at the demand, the demand year over year for jewelry, which typically in a typical quarter is, consumes about a third to 40% of the supply. But that's actually over the past year, down 14%. Technology, electronics, we can include dentistry in that fairly small, about 80 tons a quarter. That's down 2% over the past year. That leaves investment, and it's that investment into ETFs owning gold coins directly. Bullion, it's up 78% in the past year. ETFs in the first half of 2025 have bought close to 400 tons of gold. If we look at the first half of 2024, the first half of 2023, there was actually outflows out of gold ETFs. We have to go all the way to the first half of 2020 where there was 734 tons of gold demand by ETFs. That was the last time it's been this large. And so it's the investing demand, that incremental demand that is driving the price of gold. That's where this whole narrative of the debasement trade is coming from. The idea that, well, investors are worried about sovereign debt, they're worried about inflation, currency debasement of the fiat currency, and so they're buying gold. I don't quite buy that. I think that's the narrative. But when we look at other elements to suggest investors are worried about fiat currency and sovereign debt balances, it's not showing up in other indicators. We'll look at those indicators in a moment. Before we continue, let me pause and share some words from this week's sponsors. 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And when we look at the supply about a billion ounces of silver each year, about 835 million comes from mine production and another 200 million ounces or so from recycled silver. And that supply grows about 2% a year. Silver is different in that the industrial demand is the primary use case. Electronics very involved in chips for data centers. This whole AI buildout there's some about 200 million ounces a year demand for jewelry. And then when we look at those different areas over the past year, demand hasn't really increased that much. In some areas it's declined. Where there's been an increase again is in the investment demand which has been around 200 million ounces. Back last time we looked at the big run up in silver prices in 2021 there was about 340 million ounce demand for investment purposes. But again the run up in silver is being driven by investment. Trey Reich, Bristol Gold Group he is a very insightful analyst expert on gold and silver. Reich points out that silver mine production has been stagnant over the past decade and most of the silver that mined is a byproduct of other metal mining, copper, gold, zinc. And so it, it has suffered from underinvestment. Reich points out it's difficult to, to figure out what is the supply of recycled silver because any individual piece is, is worth so little and so in some regards people just don't recycle it. But it's typically the recycling of gold and silver that meets any excess demand over mining production. But when we look at the 50% plus increase in gold and silver in 2025, it's being driven by investment demand, speculative demand because they can't really value what gold and silver is worth, maybe more so is silver, but there is no cash flow. So it's driven by supply demand balances well all asset classes. It's supply demand, but there isn't an objective way to value what gold is worth. So what about this debasement trade then? If investors were truly worried about sovereign debt, we would see a much bigger gap between yields on short term interest rates and long term interest rates. If we do a regular chart comparing the yield on US 1 to 3 year treasuries with yield on 20 plus treasuries, and if you're worried about potential default over indebtedness, you would see a bigger gap. Well, right now that gap's only 1.1%. On average it's been 1.6%. There have been times such as the early 2000s when that gap was three and a half percent. Now, partly it's because the policy rate's so high. But one of the things that we can also look at is the term premium. What is the additional compensation US Bond investors are demanding to own treasury bonds apart from their expectations for the future path of short term interest rates? And right now the Federal Reserve bank of New York estimates that to be about 60 basis points. If we go back to a time where there was great concern regarding the U.S. budget deficit, U.S. trade deficit and the increasing levels of national indebtedness, that was in the 80s, the early to mid-80s, the term premium at the time was 4%. We're at 60 basis points. There is not debasement worry reflected in treasury bond yields right now. Yes, U.S. dollar is down about 9%. But there have been a return of flows from foreign investors into US assets. 80% of it's hedged right now. But it's not as if invest are avoiding investing in the US if we look at other countries such as Germany and France, we've seen the longer end of the curve rise a little bit, but not like we've seen where there is a true debt crisis. We've seen longer term yields rise in Japan. But the basement is a narrative. It's a story, but there isn't overwhelming fear of it right now. It's just sort of gold and silver are the latest meme investment. And so you're getting investors that have never bought gold, like the gentleman we quoted at the beginning of the episode in Japan. And they're buying it for the first time and they're buying it through ETFs and they're doing small trades and that is leading to increased flows into gold ETFs and demand for gold coins. And it has pushed up the price of gold and that becomes sort of self fulfilling. That's my take on it, which is why there's a part of me that says Sell, take some profits, which I still might do. If you're looking to invest in gold and I think the way to do it is to dollar cost average you can own physical gold and I think owning at least an ounce so you could just hold it in your hand to see what it feels like. The advantage of that there is no management fee to own gold not linked to financial markets. You have physical possession, you can admire its beauty, but there is the risk of theft. You have to store it and oftentimes you'll pay a premium to buy it. And it's less liquid, it's difficult to sell, but it is an experience to own something real in terms of gold. For bigger positions it makes more sense to own an ETF like the iShares Gold Trust IAU or the Spider Gold Mini shares Trust GLDM expense ratios are anywhere from 18 basis points to 40 basis points to cover the management fee storage costs. Because these ETFs they're trust they own physical gold gold and it's stored and there's a cost to doing that. Alternatively an investor can invest in gold miners or silver miners and that gets more risky because historically the miners have underperformed the actual appreciation in gold and silver bullion. When we look at what's going on right now, been an incredible year for gold and silver, you might consider taking some profits because yes, there's greater demand, but it seems to be more speculative demand. Kind of a momentum Dr. Trade rather than fundamental worries about the US sovereign debt situation which is more severe than it has ever been in terms of the rate of indebtedness, the budget deficit during a non recessionary time, there's obviously a lot of still geopolitical risk, there's trade wars. I mean there is justification to have an allocation to gold, which is why I've had some for the past decade. But if you're buying for the first time expecting this type of gold price increase to continue, I think it's pure momentum. And until we start seeing other debasement fears as reflected in bond yields, term premium, further dollar depreciation, it's pretty much held steady for the past four to five months. Much of the weakness in the dollar occurred in the first four months of the year, we need other confirmation that there's really a debasement worry out there. Now maybe you just start with one ounce and you want to start adding to your gold to get to perhaps 5% of your investable assets. I own Bitcoin for the same reason. It's a type of digital gold but I am systematically selling and taking profits. If collectively my exposure to cryptocurrency and precious metals reaches 20% of my investable assets, at some point it just it gets to be too large a position. I'd rather reinvest that in cash flow generating assets. So that's our look at gold where we stand now. What's driving the price increase? The supply demand situation? Be cautious because it is very much momentum trade right now when we consider both gold and silver. That's episode 541. Thanks for listening. You may be missing some of the best Money for the Rest of Us Content Our weekly Insider's Guide email newsletter goes beyond what we cover in our podcast episodes and helps elevate your investment journey with information that works best in written and visual formats. 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