February 18, 2025

QuickTakes

Buying What Glitters

A late-day rally sent the S&P 500 up 0.24% to a new record high of 6,130. But gold had a much better day, jumping 1.8% to a record $2,952 per ounce. This "safe haven" asset is now up 10.6% ytd, better than the S&P 500's 4.5% and bitcoin's 1.8% gains so far this year. But gold's recent ascent isn't a 2025 story. It started during February 2022 when Russia invaded Ukraine. In real terms, gold is up 29% since the war started, causing the US to freeze Russia's dollar reserves (chart).

So with US Secretary of State Marco Rubio negotiating a possible bilateral deal between the US and Russia today to end the war, why is the gold price still climbing?

Demand has surged to pull gold out of London and move it to New York ahead of potential Trump tariffs. COMEX inventories have skyrocketed to more than 37 million troy ounces in recent days (chart).

But even if Russia returns to the SWIFT international payments system, countries such as China, Iran, and Russia undoubtedly will continue to scoop up more gold to diversify their international reserves away from the dollar (chart).

China's buying power is coming not only from the government but also from retail investors there who now have no property market in which to store their wealth. Also, Chinese citizens are almost certainly buying bitcoin, which is up more than 900% in real terms since 2020 and has outperformed gold since the Ukraine war began until late last year (chart).

One major difference between "digital gold" and the real thing, however, is that the former trades like a highly levered (or high-beta) version of the Nasdaq 100, while the latter has protected purchasing power for hundreds of years through massive economic and geopolitical transformations (chart).

We continue to favor gold with price targets of $4,000 per ounce this year and $5,000 in 2026.

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