And almost on cue, gold is at another all time high today and rapidly closing in on $3,000 per troy ounce.
It’s not hard to understand why.
We’ve been talking about this for quite some time— foreign governments, central banks, and even some large foreign corporations now are trading their dollars for gold. And that’s going to have some unfortunate, negative consequences for the US.
I’m sincerely pulling for Elon and DOGE. I really am. And I think they’ve got a great shot at cutting hundreds of billions of dollars from the federal budget. These guys aren’t messing around and have no qualms about cutting everything that doesn’t make sense.
I also hope Congress and the White House find the courage to make critical reforms to Social Security (though I am less optimistic about that one).
And the final piece to the puzzle of getting America back on track, of course, is slashing regulation and getting back to capitalism. There certainly seems to be a lot of momentum in this direction.
The math is pretty clear: if they manage to succeed at these key challenges, then there is a good chance for the US to grow its way out of debt. But even that is going to take many, many years.
In the meantime the Treasury Department will still need to rely heavily on foreigners to buy (and continue to hold) US government bonds.
I’ve explained before that foreigners own roughly half of all fixed-rate, “marketable” US government debt. So they’re a pretty important lender.
And in order for this turnaround plan to work, the Treasury Department will need those foreign bondholders to keep investing and reinvesting in America’s national debt.
But right now there are a lot of foreign countries that are deeply concerned about holding US Treasury securities. This administration has already threatened even its friends and neighbors with tariffs, and the last administration had an endless fetish for sanctions.
Think about it like this: imagine you hold a good chunk of your money in a faraway bank, and your banker was constantly threatening to freeze your account and cut off access to your funds.
Sure, maybe it’s a very nice and prestigious bank. But after so many threats, would you still keep all of your money there? Would you still want your paycheck direct deposited into that bank, month after month? Or would you start looking around at alternatives?
That’s what’s driving the gold price right now. Foreign governments and central banks are wary about holding official US securities, gold is the most viable alternative. Just like dollars, gold has universal marketability— no central banker is worried about whether they’ll ever be able to sell their gold.
Plus virtually every other government and central bank owns gold, which means it can already be used to settle current and capital account deficits if necessary.
Concern over sanctions, inflation, and America’s gargantuan national debt led foreign officials to buy up more gold over the past couple of years. Overall, they made roughly $80 billion in excess gold purchases in 2023-2024, causing the gold price to jump from about $1,800 to over $2,900.
$80 billion is a drop in the bucket for foreign governments and central banks; they have 100x that much worth of US dollar reserves.
So if $80 billion of excess purchases resulted in a $1,000+ price jump in the gold price, what will happen if they buy $1 trillion or more in gold? That’s the potential scenario that could play out.
Either way, gold is at an all-time high today. But, quite bizarrely, gold-related companies are still at ridiculously cheap levels.
To give you an example, there is a company we presented not long ago to subscribers of The 4th Pillar, our premium investment research service; it’s a profitable gold company with an excellent, clean balance sheet, very little debt, and strong growth. In fact the company even pays a healthy dividend to shareholders.
Yet when we published our research on the company, it was only valued at a mere 5x Free Cash Flow. That’s practically nothing.
The stock has now more than doubled in price as some investors are starting to realize what we discovered and presented to our subscribers many months ago.
But even now, because current and projected earnings have continued to increase, the company is still extremely undervalued even though it doubled in price.
We still see a number of similar opportunities, i.e. gold-related businesses that may be paying strong dividends, have debt-free balance sheets, and are profitable, yet still trade at outrageously low valuations despite gold’s all-time high.
Another report we sent out to our premium subscribers just last week profiled an undervalued gold mining company that has an all-in production price of just $1,500 per ounce. And yet the business is valued at TWO times its expected earnings this year.
It’s really unusual to see such an anomaly, and it almost certainly will not last.
