Strategic Note | Office of the CIO - Gold

Every few years, gold becomes relevant for new reasons including: inflation, geopolitics, debt crises, or currency debasement. Today, it is all of the above. Investors are asking once more: Is gold still worth owning? Our answer is yes, more than ever. In the simplest terms, gold remains the one form of money that can’t be printed, defaulted on, or politically manipulated. In an environment of rising financial leverage, geopolitical fragmentation, and central bank activism, gold continues to serve its ancient purpose: a store of value that endures when confidence in “paper promises” wavers.

How Gold Fits in the Modern Monetary System

All money systems fall into one of two camps:

1. Hard-asset-backed money – historically linked to gold or silver.
2. Fiat money – backed only by government credibility.

History shows that when debt levels outgrow the supply of “real” money, leaders face a choice:

• Deflation and default, by keeping the link to gold, or
• Devaluation and inflation, by breaking it.

Before the modern central banking era, we saw more of the former; since 1913, we’ve seen mostly the latter. The shift in 1971, when the U.S. fully abandoned gold convertibility, cemented the fiat era. Every time debt outpaces income: 1933, 1971, 2008, 2020, central banks respond the same way: create more money and credit. Each time, gold has responded in kind. The relationship is enduring and mechanical: as faith in fiat systems weakens, gold strengthens.

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The 2025 Gold Market: Old Lessons, New Catalysts

1. Momentum & Institutional Repricing

Gold has surged 40% year-to-date, breaching $4,000/oz for the first time in history.

Forecasts remain constructive:

• A stressed scenario, where confidence in the Fed erodes, it could push prices toward $5,000/oz, triggered by even a 1% shift of U.S. Treasury holdings into gold.

Momentum isn’t speculation; it’s a repricing of money’s foundation. Investors are rediscovering that gold’s “zero yield” is better than negative real returns elsewhere.

2. Structural Demand from Central Banks & ETFs

Unlike prior bull cycles, today’s demand is institutional and structural.

• Central banks have become consistent net buyers, accounting for an estimated 9% upward pressure on prices this year.
• ETF inflows, fueled by low rates and geopolitical tension, are absorbing supply at a record pace.

This is not a speculative mania; it’s a reallocation of reserves, official and private, toward an asset without counterparty risk.

3. The Macro Backdrop: Trust, Policy, and Politics

The current environment echoes prior monetary transitions:

• Global debt is at historic highs relative to GDP.
• Real yields remain compressed.
• The Federal Reserve’s independence is being tested politically.

In this setting, non-sovereign stores of value gain appeal. Gold’s strength isn’t just about inflation; it’s about trust, the rarest commodity in the financial system.

RBC notes that even if gold screens “overvalued” on fundamentals, its psychological role as a volatility hedge justifies its premium.

4. Diversification and Correlation Dynamics

In 2024, gold rose 26% while equities advanced and long bonds declined. That divergence is rare and telling.
Gold’s low correlation with both stocks and bonds makes it one of the few assets that can rally when everything else falls or still hold when everything else rises.

In multi-asset portfolios, gold behaves like an insurance policy that occasionally pays a dividend of returns.

Strategic Role: A Core Allocation, not a Trade

Like Dalio, we don’t view gold as a tactical play. It’s strategic money, not a speculative asset.
A prudent long-term allocation typically ranges between 5% and 10%, depending on portfolio structure and risk tolerance. Tactical tilts, overweighting during times of monetary or geopolitical stress can enhance resilience, but the strategic core should remain constant.

Gold’s historical real return (~1–1.5%) may seem modest, but its correlation benefits and tail protection justify its inclusion. Over time, its opportunity cost shrinks whenever fiat yields fail to compensate for inflation or default risk, as they do today.

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Conclusion: The Metal That Measures Trust

Gold’s value isn’t in its luster but in what it represents discipline, scarcity, and credibility in a system built on elasticity, politics, and promises.

In a world where money can be created at will, but trust cannot, gold remains the ultimate reserve of stability.

At MLD, our conviction remains that the gold thesis is stronger than ever; supported by fundamentals, validated by flows, and reinforced by history. In the portfolio context, it continues to serve as both shield and sword, protecting purchasing power while capturing the upside of a shifting monetary order.

Summary: Why We Remain Bullish

• Momentum: Record highs, strong technical and flow-based support.
• Forecasts: Institutional targets $3,700–$4,500; stressed upside $5,000+.
• Demand Drivers: Central banks + ETF investors driving a structural bid.
• Macro Tailwinds: Debt, policy, and real-rate compression reinforce gold’s appeal.
• Diversification: Proven low correlation across market cycles.

Gold remains not just a hedge, but a foundation for portfolios built to endure the next era of money.