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Welcome back to the rundown for another weekend deep dive. Today we are talking about gold. Gold has been on a tear all year. The price is up nearly 50%, flirting with $4,000 an ounce, nearly double what it was just a couple of years ago. So in today's episode, we're taking a closer look at the reason behind the surge in gold price and whether it's a warning sign for the economy and what's to come. We got a great show for you today. Let's dive in. Now, before we get into the nitty gritty of everything, let's first do a quick refresher and talk about why investors buy gold in the first place. Gold doesn't make any profits or pay a dividend like a company does. It doesn't have an earnings report. It's just a shiny rock that looks nice on jewelry. So what's the deal here? Well, gold is considered a safe haven asset. It's been used to conduct business for thousands of years. So? So whenever things get chaotic, like wars or political instability or market uncertainty, investors tend to get nervous and they pull their money out of riskier assets like stocks and put that money into gold. It's like the finance world's version of an underground bunker. When things start getting crazy, investors just go to gold. You know, gold is tangible. You can touch it, you can hold it. It's been a store of value for thousands of years. It doesn't rely on government promises or a CEO's quarterly reports. And that's what makes it an attractive investment to during times of uncertainty. Gold is also a hedge against inflation. Central bankers can print more currency like dollars, but they can't print more gold. So this rally in gold recently is a sign that investors are worried about the stability of the economy. You know, there are still geopolitical uncertainties. The markets are flashing signs of an AI bubble. Global trade is seeing a slowdown due to tariffs, and the Federal Reserve is cutting rates when inflation hasn't fully been tamed. And then to add to all of that, there's now a government shutdown unfolding. So let's talk about it. The gold rally got a boost this past week because of the government shutdown here in the U.S. lawmakers in Washington, D.C. couldn't agree on a budget bill, and now the government is shut down. Now, I'm not gonna get into the specifics of a government shutdown in this episode about gold. Maybe we'll have to do a separate deep dive about a government shutdown in the future. But I will say that Typically, government shutdowns don't have a significant impact on the economy. Markets pretty much ignore them. In fact, if you look at the last shutdown, which was back in 20, it lasted a record 35 days. But during those 35 days, the S&P 500 rallied 10%. The Congressional Budget Office estimated that the shutdown back then knocked just 0.02% off the US GDP for the year, which is like a rounding error, essentially. But, you know, this time could be different. At least that's what the narrative is right now. The main reason for that is because the Trump administration is looking to leverage this shutdown to. To permanently terminate federal jobs. See, normally, during a shutdown, federal workers are usually furloughed, which means that they're sent home and they're not working and they're not receiving a paycheck during the shutdown period. The Congressional Budget Office estimates that around 750,000 employees will be furloughed during this shutdown, at the cost of around $400 million per day in lost compensation. But usually these employees are called back to work after the shutdown ends, so some of these employees even get back pay. But the Trump administration is potentially looking to permanently cut these jobs instead of bringing them back. And that could be a shock to the labor market, which is already showing signs of weakness. In fact, one of the reasons the Federal Reserve cut interest rates last month was because of a slowing labor market. And that brings me to the other effect of a government shutdown is the lack of economic data from the government. You know, because of this shutdown, the BLS didn't release a jobs report this past Friday. And, and depending on how long the shutdown goes, we might not get inflation reports or data on wages. These are all key important economic data that investors aren't going to have anymore, and more importantly, the Federal Reserve won't have anymore. And the Fed relies on this information to make decisions on what to do with interest rates. So all of that is leading to more anxiety and uncertainty amongst investors, which is pushing investors to buy more gold now, while the shutdown has added fuel to the gold rally. But gold was already up like 40% this year before the government shut down. And a big reason for that is President Trump's return to the Oval Office in January. Since Trump took office, he's made some major moves rewriting the rules of global trade. I think we all remember the tariff shock from back in April, when Trump slapped really high tariffs on countries all over the world with the goal of bringing back manufacturing to The US now, while some of those tariffs have been walked, backed or reduced to, tariffs are still at the highest level in decades. So the uncertainty around tariffs and the potential impact they could have on the US Economy and inflation is pushing investors towards gold. Now, speaking of inflation, Trump is also bullying Jerome Powell to cut interest rates. You know, the Federal Reserve is supposed to be this independent entity, not influenced by politicians. Their job is to set interest rates to keep inflation low and employment high. But President Trump has been pushing the Fed to cut interest rates on all year, despite inflation being above the Fed's 2% target. Now, the Fed finally cut rates recently and they're expected to cut more moving forward. And lower rates are typically a bullish signal for gold. That's because lower interest rates, meaning there's going to be lower yield on things like government bonds. So if investors are going to get lower yield on their money with bonds, they're more willing to buy gold instead. Now, the Fed cut interest rates at the September meeting for the first time in 2025, but by 25 basis points. And according to the CME Fed Watch tool, there's a 95% chance. The Fed cuts interest rates again by 25 basis points at the Fed meeting in October. And then there's an 85% chance of a rate cut at the December meeting. So we're likely going to get more rate cuts, which is pushing interest rates lower. It could also drive up inflation, not to mention the tariff factor. And all of that has been a tailwind for gold. So the last nine months under Trump have certainly accelerated the demand for gold. But his return wasn't the initial catalyst. Arguably the strongest, most important trend pushing gold has been the demand from central banks all over the world. This trend really kicked off in 2022, right after Russia's foreign currency reserves were frozen following the invasion of Ukraine. So all the dollars in Euros that Russia held in banks all over the world were frozen. They couldn't get access to them. And that was a wake up call for countries around the world to hold physical gold instead of dollars and Euros. According to Goldman Sachs, central bankers, especially in emerging markets, have increased their gold purchases about five fold since 2022. Central banks now collectively hold about 27% of their total global reserves in gold. In fact, it's the first time since 1996 that gold is a larger share of the central bank reserves than Treasuries. Gold is now the second largest global reserve asset. The US Dollar is still number one for now, and Goldman Sachs doesn't expect this trend to reverse anytime soon. They expect central bankers to continue accumulating gold for at least the next three years. And one of the lead buyers of gold has been China. The People's bank of China has increased their gold holdings for 10 straight months. And here's another crazy stat about China. They still hold only about 7% of their reserves in gold. Compare that to more than 70% for the U.S. germany, France, and Italy, Spain. So China has a lot of room to add more gold. But China isn't just buying gold to diversify their balance sheet. Analysts believe that Beijing is trying to reduce their reliance on the US Dollar and also position themselves as someone that can hold gold for other countries. That would give China more leverage in global financing while reducing Western dominance. Last month, Bloomberg reported that China is courting central banks in friendly countries to buy gold and and store it within China's borders through the Shanghai Gold Exchange. If China becomes a major custodian for gold reserves, kind of like how the bank of England is right now holding over 5,000 tons of gold for other countries, it would be a massive shift in the global financial system. It would give countries an alternative to storing their gold from London or New York to Shanghai. And this could be especially attractive for countries worried about getting cut off from Western financial markets. So when you zoom out, this gold rally over the last year isn't just about the government shutdown in the US or inflation. It's about the shifting global power dynamics away from the US Dollar. And it's being led by China. So what's my take here? Is this gold rally really a warning for the economy? Personally, I don't think that this gold rally means that a recession is coming tomorrow or within the next few months. The stock market is still strong. The economy is still technically growing. But this gold rally seems to be more of a crisis of confidence. Investors have less confidence in the US Government, where shutdowns and political drama are shaking trust and government stability. There's also less confidence in the Federal Reserve, where political attacks undermine their credibility. And there's also less confidence in the US Dollar as central bankers all over the world, led by China, actively search for alternatives. This gold rally is telling us that investors don't fully trust the system anymore. And. And when trust erodes, people reach for the one asset that has held its value for thousands of years and doesn't depend on anyone's promises. You know, I've been a gold hater for a long time. I never really invested in it because to me, it's just a shiny piece of rock that doesn't generate profits or pay dividends. But. But I'm not gonna lie, this recent gold rally and the developments around it has gotten my attention. Now I just wish I listened to my mom last year and bought some gold at Costco. Well, all right guys, that's it for today's weekend deep dive. If you like today's breakdown, make sure you guys subscribe to the podcast on Apple, Spotify, YouTube, wherever you listen to your podcasts. And let us know in the comments on Spotify or YouTube on what you thought about the topic and what you want us to cover in future deep dives. Thank you guys again for listening, watching and commenting. Shout out to Mike and Connor for all the work behind the scenes and we'll see you guys back here tomorrow for the interview. Limu Limu and Doug.