This is an audio transcript of the Unhedged podcast episode: ‘Why is gold buggin’?’
[MUSIC PLAYING]
Katie Martin
The hottest asset on the planet right now is not some fancy tech stock or even a super soaraway memecoin. It’s gold. People are desperate to get their hands on the stuff. It’s up like 10 per cent this year, even though some of the things we normally look at elsewhere in markets that tell us what gold is gonna do are not really pointing that way. So today on the show we’re asking what is going on with this thing?
This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I’m Katie Martin, a markets columnist at the FT in London. And typically, I’ve got to say, I’m not much of a gold bug, but I bow down to the performance of this most ancient of assets. And speaking of ancient, guess who’s back?
Robert Armstrong
(Laughter) I didn’t see that coming.
Katie Martin
(Laughter) It’s Rob Armstrong of the Unhedged newsletter.
Robert Armstrong
The only asset more ancient than gold — Rob Armstrong, financial commentator. Oh, dear.
Katie Martin
Yes. I figured that joke might need work, but turns out it worked pretty well. But how are you doing? You’ve been away. You’ve been outside of New York City. Were there dragons?
Robert Armstrong
I recently went to Arizona, beautiful Arizona, for an investment conference and talked to a lot of people who manage endowment and foundation money.
Katie Martin
Big money.
Robert Armstrong
And let me tell you, they are as puzzled as the rest of us about what is going on in the world right now. You know, it’s funny. People who run like, a university’s money, they have an office of three people or whatever and they’re running like $1bn or $2bn. And they outsource all this stuff. So they find outside managers to do it. But still, they have to decide which manager and what to allocate to which assets. And these people are all overwhelmed anyway. And this period of time is very overwhelming for them because they feel they should do something in response to all the weird changes going on in the world. But they don’t know what it is. So I say welcome to the party, endowment manager.
Katie Martin
You know, you ask the experts like, what’s going on and they say, like, you tell me.
Robert Armstrong
(Laughter) I have no idea.
Katie Martin
The scary thought is maybe they’re figuring it out from this podcast.
Robert Armstrong
But this brings us precisely to the question of gold, which is the asset which you buy when you feel uncertain about things, right?
Katie Martin
Yes. When bad stuff happens, gold goes up. When people are worried about the state of the world, gold goes up. Gold is up right now.
Robert Armstrong
I think we should be a bit more specific about that. It’s only when things . . . Historically, the only time gold really outperforms your normal financial assets like stocks or bonds or whatever is when things are really bad. Like in proper crises is when gold really is a useful diversifier and hedge. When things are only mildly bad it’s actually a terrible asset to own.
Katie Martin
But look, let’s just talk about what it’s done so far this year. As I mentioned, it’s up 10 per cent year to date. And like, last time I checked, it’s still only February. That’s quite a lot.
Robert Armstrong
Yeah, it’s a big move on top of earlier big moves.
Katie Martin
Yeah. So it’s up 40 per cent since the start of 2024. We are now at something like $2,900 an ounce. Ye gods. That’s a big number.
Robert Armstrong
It’s basically doubled since late 2022. It’s a really impressive run.
Katie Martin
Very impressive. So when you’re talking about gold, yes, very obviously it is a metal.
Robert Armstrong
Yeah. It’s not a vegetable.
Katie Martin
I’m no scientist, but I know this much. But it doesn’t move around based on the sorts of things that other metals move around because its industrial uses are not the main driver of the price. So it’s more of a kind a…
Robert Armstrong
Yes, there are industrial uses for this stuff, but most of the demand comes from jewellery/investment demand. And in some parts of the world those two are the same thing.
But you know what was weird about the run in gold that went from, say, early 2024 to kind of the fall of last year, is that the usual things that kind of moved the gold price, which are the real interest rate — that is the interest rate after inflation — and the dollar — because gold is priced in dollars, when the dollar strengthens, the gold price usually goes down. Those things which usually allow you to navigate the gold price — you know, understand the gold price a little bit. Those things are actually going the other direction. In other words, real yields were going up, increasing the opportunity price of owning gold, which should in theory make gold go down. And yet gold went up. And the dollar was getting stronger, which should create pressure on gold. And yet gold was going up.
Now, however, in this latest 2025 rally, at least those things are all going the direction they’re supposed to go. Real yields have come down. The dollar has, quite surprisingly in recent weeks, weakened when everybody thought it was gonna strengthen. And gold has responded the way gold is supposed to respond. So yay for this tiny shred of economic logic in what is happening lately to gold.
Katie Martin
There is a little bit of logic, but there has been a break in the logic as well. So going back to your point about real yields. So the whole point of gold is if you hold it as an asset, it is a pet rock, right? This thing does not pay you dividends like a lot of stocks do. It doesn’t pay you any sort of return like a bond does. It’s just a nice shiny rock and it goes up in price or it goes down in price. And so normally when yields are high, when bond yields are high, particularly in relation to inflation, people say, I don’t need gold in my portfolio, it doesn’t pay me anything. I may as well own these bonds instead. But that is not what’s been going on recently so it is a bit of a head-scratcher.
Robert Armstrong
Yeah. Yields are higher and real yields still are high. But we should make the distinction between the level and the rate of change. And the level is still high, but, you know, the rate of change is at least in the last few weeks, going gold’s direction.
We should also talk about, you know, why else gold might be in demand right now, right? And this brings us to every gold bug’s favourite story, which is kind of the de-dollarisation story. If the global reserve currency, which is the dollar, is something you don’t wanna hold any more, then the natural substitute — because goodness knows you don’t wanna hold Chinese renminbi, Canadian dollars, God help you the euro — is to go to what is sometimes thought of as a currency in gold. So is de-dollarisation part of the story here, a move away from the dollar part of the story here?
Katie Martin
I’m not sure it’s quite de-dollarisation, but there is definitely something going on whereby official reserve holders, right, which is like this sort of catch-all term that encompasses like big sovereign wealth funds and central banks around the world and other kind of government-related stores of national wealth around the world. One thing you can definitely see is that they have, particularly actually since the election of Donald Trump, they have pulled back from US government bonds. And instead, so they’re not saying, right, we’re gonna put our reserves in Chinese renminbi, because that’s got certain issues around it, around whether you can get the money out again. They’re not necessarily saying we’re gonna put our money into euros and government bonds because, again, the euro is a bit of a, you know, a problematic currency for those big long-term managers of money because it’s just . . . It’s got some structural flaws. You know, the euro is a big slice of these reserves. But still, we digress.
But what they are doing is saying, I don’t necessarily need any sort of bonds in my portfolio here. I’m gonna put the money into gold. And so we’re seeing quite a lot of gold purchases from central banks around the world. And that is kind of interesting, right?
Robert Armstrong
Right. I mean, there’s two related reasons a central bank might buy gold. One is that you think holding treasuries, US Treasuries, which is the kind of natural way to hold the dollar, is no longer a good idea. Maybe you think the US is gonna become a fiscal basket case or whatever.
The other reason is because dollars and dollar assets come with strings attached. If you accumulate as reserves dollars or dollar-based assets, you are vulnerable to US sanctions and you are subject to US political control. So you might say let me have a little gold in reserve so if I end up on the United States’s naughty list, I will still have an asset I can use to buy the things that I need.
Katie Martin
Now, the last big example of that happening, which is why stuff like real yields and the price of gold have diverged over the past few years. The last time that really happened in dramatic fashion was 2022. Russia launched its full-scale invasion of Ukraine and the US, like, pulled the cord, right? It said, OK, we’re going to use the power invested in us through the dollar being the global reserve currency to freeze Russia out of the dollar system. It basically used its currency as a weapon. Now, so other countries around the world look at this and they think, I don’t want to be in the same boat. Now, one way to avoid being in the same boat is not to launch a war of aggression against neighbouring states. So . . .
Robert Armstrong
(Laughter) That’s one strategy, if you’re a wimp.
Katie Martin
It’s just not that difficult, to my mind, to avoid. But you do have a new president in the White House. He is a mercurial character, one might say. He’s a lot less predictable.
Robert Armstrong
That’s fair. Like him or not like him, you’re gonna use the word mercurial. Mercurial? Am I saying that right? I’m not even sure.
Katie Martin
Mercurial. Yes. Who knows what he might do with this power in the future? And so it does look like, if you look at the timing between central banks around the world reducing their treasury holdings, central banks around the world increasing their gold holdings, there does seem to be a bit of a correlation. So it’s not mad to theorise here that these two things are related and there is a bit of a demand for gold out there from governments around the world that don’t want to, as you say, get put on the US naughty step.
Robert Armstrong
The World Gold Council provides us with their estimates of gold purchases, net new gold purchases by central banks. This is for 2024. And your number one gold buyer with over 80 tonnes of gold purchased: Poland. Filling out the top five, which with quite a bit less than Poland, are Turkey, India, Azerbaijan and China. And those are by far the biggest new gold purchasers. China added 40-odd billion, I mean, 40-odd tonnes of gold, yes. It’s important in shows like this to get the units right. You end up sending extremely silly.
Katie Martin
Get your units right. Show you’re working.
Robert Armstrong
If you look at those five countries, they are either close to, in the sphere of influence of or are uneasy allies with Russia. So Poland, of course, a close neighbour and a close neighbour of Ukraine; Turkey, long a kind of bridge between the European west and the Russian east; Azerbaijan, very much in that neighbourhood as well. And both China and India have been an outlet for Russian energy, oil and gas under US sanctions. So their purchases of gold, heavy purchases of gold this year are not coincidental.
Katie Martin
Yeah. So the World Gold Council was saying that last year, so 2024, central banks added over a thousand tonnes of gold to their global reserves. And that’s the third year in a row it’s been over a thousand tonnes. And there’s been like a massive step change from pre-2022 to post-2022. So a thousand tonnes a year has become the new normal that you, like, really over the past sort of three years. But there’s definitely something going on around sanctions-proofing your reserves, which is just super interesting, although people buy it for different reasons, right? It’s security. It is a store of wealth.
Robert Armstrong
It’s a very emotional asset.
Katie Martin
It’s a very emotional asset. And it’s, you know, got a very long history behind it. So central banks buy it for, you know, whatever their motivations are. But the point is that they are buying in pretty substantial numbers.
Robert Armstrong
And have been, I should note, and have been for a couple of years now. It’s been not just the last couple of weeks or months that central banks have started to marginally move towards gold.
Katie Martin
But one thing that has really accelerated quite quickly is I’m sure you saw the story that we ran the other day from Leslie Hook, who writes about metals and commodities for us.
Robert Armstrong
Yes.
Katie Martin
And she was writing that there’s been a massive surge in shipments of gold to the US, creating a shortage of bullion in London. So there’s a huge stockpile of this stuff in New York. There’s a real kind of, you know, sucking noise as oil does sort of…
Robert Armstrong
As it goes from one place to the other.
Katie Martin
Exactly. And one of the analysts that she quoted in the story was saying there’s a feeling that Trump could go across the board and impose new tariffs on raw materials coming into the US, including gold. And so people are trying to get ahead of that. And so all of a sudden, if you want to get your gold from the UK over to New York, then there’s quite a long waiting list actually, to make that happen. Quite an unusually long one.
Robert Armstrong
It really brings out how different this asset is. Gold is very heavy and when there is a financial, a global financial imbalance, such as an imbalance between the physical gold price in London and the gold futures price in New York, people actually take this heavy stuff and put it on an airplane and fly it over the ocean.
Katie Martin
Must cost a fortune. Yeah.
Robert Armstrong
To me, this is just astonishing that in our modern day and age we are closing what are essentially financial transactions by putting heavy metals on to planes and flying them across the ocean. And you know what is even weirder about this kind of New York-London arbitrage is that in order to deliver gold to either close a contract or just a transaction in the two markets, the gold has to be in different-shaped bars. So if you want to take London cash market gold and get it to New York, you first generally fly it to a refinery in Switzerland, melt it down into a different shape so it’s the shape that Comex exchanges will take in New York before you fly it. It just shows you this asset is not like the others. The other ones you’re just like, make a phone call. I’ll trade you this for that. Yes. OK. Hang up phone. Whole thing is over. The only thing that has moved is electrons.
Katie Martin
Yes. A number changed on a screen. Done.
Robert Armstrong
There’s no heavy stuff. There’s no vault. And so gold is just different.
Katie Martin
So normally, though, one of the things that’s bugging me about this is that when the gold price shoots higher, that’s because there’s some sort of war, pestilence, terrible thing, horsemen of the apocalypse. Something terrible is happening. So it is sort of strange that you’ve got this massive run-up in the price of gold while stocks are still doing pretty well and bonds are still doing relatively badly. Like, there is no sort of giant flight to safety going on that would normally be associated with a rise in the gold price that’s like this.
But one of the other super-weird things — everything about gold is super weird — but one super-weird thing that’s come up recently, there’s a column written by our colleague Gillian Tett, who was writing about I can’t even get my head around the scheme. So the US is sitting on enormous amounts of gold, right? The US government…
Robert Armstrong
It has gold reserves just like other countries do.
Katie Martin
And for reasons that escape me, this gold is valued at $42 an ounce because that’s what it . . . Was that when they . . . I don’t know. Why is it $42 an ounce?
Robert Armstrong
Yeah. My understanding of why the number for the official reserves is $42 an ounce is that is a frozen price dating back to when Nixon forbade us for trading dollars with gold with the US government. So that $42 nominal price is one of the many parts of Nixon’s legacy.
Katie Martin
And now there’s this idea that, again, for like weird accounting purposes, they might revalue it and say, $42 an ounce? No. That’ll be $2,800 an ounce. Thank you very much. And then all of a sudden it looks like the US is lots richer and that this appears to be one of the reasons this feeding into the rise in the gold price. Personally, I don’t get it.
Robert Armstrong
OK, so let me just read two brief paragraphs from Gillian’s article, because this stuff is so weird that you kind of have to write it down and then say it out loud: So currently, US reserves are valued at just $42 an ounce in the national accounts. But knowledgeable observers reckon that if they were marked at current values — $2,800 an ounce — this could inject $800bn into the Treasury general account via a repurchase agreement. That might reduce the need to issue quite so many treasuries this year. This week, such chatter intensified after Treasury Secretary Scott Bessent both pledged to monetise the asset side of the US balance sheet while also promising to lower 10-year Treasury yields.
Now, let’s just first be clear about what this is not. This is not the US government saying we actually have all this stuff that’s really valuable right now. Let’s sell some of it to reduce the national debt.
Katie Martin
No, because that would push the price down.
Robert Armstrong
Yeah, of course. That would add supply to the market and push the price down. So it can’t be that. And the keyword in that bit I just read is, key words rather, are repurchase agreement. So the idea here seems to be, which is, of course, a lending agreement that the government would lend gold to itself in return for cash with an agreement to reverse the transaction some time later. But the presence of that cash would relieve the United States of the need to issue more debt. So this is purely an internal accounting game, perhaps not totally unlike quantitative easing, but never mind. And why this would affect the gold price in the real world as the US, you know, kind of moved pieces around on its internal chessboard, I have no idea. But, you know, monetising US side of the balance sheet, the whole thing strikes me as odd and jejune. But what do I know?
Katie Martin
Yeah. I mean, what I do know is that, like, you know, I’ve seen lots of commentary kicking around for the past couple of years saying the gold price is getting out of hand. It’s got to stabilise soon. It’s got to fall soon. And it just never does. It’s been on the up and up.
Robert Armstrong
Yes. The $2,100 level, we’re now at 29. The idea was, you know, people who buy it for investment are gold- or price-sensitive and stop buying at around like, $2,100 historically. Nope. Didn’t happen.
Katie Martin
Nope. Not so much. Yeah. And my expectation would be as long as, like, geopolitics stays unstable and as long as Trump remains mercurial, as we’ve decided we’re gonna call him, then my hunch would be that this official buying is gonna carry on. It’s not gonna get slammed into reverse. So, I mean, great times for gold bugs.
Robert Armstrong
Indeed. Yes. And look, you and I can argue about whether gold is a proper asset or is really a currency or this or that until our faces turn blue. But if the world’s central banks are buying this stuff, our academic objections really don’t matter today. Do they?
Katie Martin
Yeah. It’s almost as if we don’t matter at all. (Laughter) Nobody is listening to us. Hey ho, story of my life.
[MUSIC PLAYING]
Let’s wrap it up there, Rob. We all gonna be back in a sec with Long/Short.
[MUSIC PLAYING]
Alrighty. Now it’s time for Long/Short, that part of the show where we go long a thing we love or short a thing we hate. Rob, what you got?
Robert Armstrong
I have a pair trade for you, Katie. I’m gonna go short the penny and long candy. And here is why. Hard candies, specifically. So President Trump, as listeners may have heard, wants to get rid of the penny because it costs more to make a penny than a penny is worth. That doesn’t seem to make sense. And as everyone knows, pennies are super annoying. We all have the physical manifestation of how annoying they are in the huge jars full of pennies we all hold in our houses. So I think get rid of the penny. Be gone, penny. You are an annoying relic of an earlier time. But it also makes me think of the fact that back in my youth, when I travelled to Italy, when they still had the lira.
Katie Martin
In the old days.
Robert Armstrong
And there was like this thing where you couldn’t make the liras were so values that you couldn’t make precise change or whatever any more. So they would just like give you roughly your change and like, a piece of candy to make up the difference. And like, we have a transaction in the United States that, you know, doesn’t round to the nearest nickel or whatever. I think we’ll just cover the difference with hard candies, which is why we should be long the hard candy industry.
Katie Martin
Why don’t you just pay with your phones like everybody else?
Robert Armstrong
Communist. That would be communist.
Katie Martin
I am long tech bro drama. So Elon Musk says he wants to buy OpenAI for $100bn with his mates. I don’t know. Sam Altman, who runs OpenAI, immediately snapped back with a no thanks, but we’ll buy X off you for $10bn. (Robert laughs) And then he said on the television, this is Sam Altman. You know, I feel for the guy. I don’t think he’s like, a happy person. No. I don’t really care who gets to be the biggest, baddest tech bro. Although I do have some concerns around competition, proximity to power, that sort of thing. But I am very much here for the drama, the cat fighting, the bro on bro, like…
Robert Armstrong
Tech Bros the Musical is gonna be so awesome.
Katie Martin
Whatever happened to wasn’t Musk gonna fight Mark Zuckerberg in a cage fight, and that disappointingly never happened. So if we can resurrect the tech bro cage fighting, then I will pay all of my money to watch on TV.
[MUSIC PLAYING]
Robert Armstrong
Katie, we live in a true golden age.
Katie Martin
(Laughter) What a time to be alive. If we are still alive on Thursday, we will be back in your ears then. So listen up.
Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. Special thanks to Laura Clarke, Alastair Mackie, Gretta Cohn and Natalie Sadler.
FT premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to FT.com/unhedgedoffer.
I’m Katie Martin. Thanks for listening.
[MUSIC PLAYING]
