April 17, 2025

QuickTakes

Gold Is Glittering

We've been bullish on gold since it broke out above $2,000 per ounce at the end of February 2024. It has been trading in an upward channel since then (chart). It soared to $2,600 by the end of last year. In recent days, it has jumped to a record $3,300, which is the upper end of the channel. Our $4,000 target by the end of this year looks increasingly realistic. If that happens, then $5,000 would be our target for the end of 2026.

President Richard Nixon closed the gold window on August 15, 1971. This action ended the direct convertibility of the US dollar to gold, effectively dismantling the Bretton Woods system. Since then, there have been two major bull markets in the price of gold. The first one saw the price soar twentyfold from August 1970 through January 1980 (chart). In the second major bull market, the gold price increased sevenfold.

Central banks around the world have been increasing the percentage of their international reserves held in gold since early 2022 (chart). That's after Russia invaded Ukraine in February 2022. The US and its allies responded by freezing Russia's foreign exchange reserves, which amounted to $280 billion. The central banks of countries that are hostile to American interests have moved more of their reserves into gold as a result.

China has been increasing the percentage of its international reserves in gold since late 2022 from about 3.5% to 7.1% currently (chart).

The amount of physical gold held by China in international reserves increased sharply from late 2022 through the start of this year.

By the way, gold has outperformed the S&P 500 since Nixon closed the gold window in 1971 (chart).

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