The story goes that gold is a hedge in uncertain times.
When fiat markets crash, the price of gold is meant to surge.
In times of war or upheaval… same thing.
But in recent decades the price of gold has been off-story, to say the least.
The price of gold didn’t surge significantly after 9/11.
Nor did it go to the moon immediately after the real estate crash of 2008.
It didn’t move much when Russia invaded Ukraine this year either.
In short, the price of gold hasn’t been doing what it’s meant to do.
On the plus side, while holding gold hasn’t made people rich, it has shown some welcome stability.
But what about the months to come, particularly in the US?
Will the price of gold continue to hold steady, or are there some events that might finally represent a tipping point?
I think there are 3 reasons the price might jump higher.
Reason #1: The US is facing a period of unusually high political and social divisions.
From the events of January 6th to the growing number of people and groups questioning the authority of the US government, we live in dangerous times.
According to the University of Chicago’s Institute of Politics, 38% of conservatives in the US agreed it might soon be necessary to take up arms against the government.
Regardless of which side you are on, it has been many decades since the US felt so divided. And those divisions have to potential to cause great damage to the country’s democratic institutions, and its economy.
An increase in tensions and violence could very well trigger a flight to gold.
It hasn’t happened yet, but it could.
Reason #2: Severe weather events cause huge damage to public infrastructure and private property.
Whatever your position on climate change or its causes, there is no denying some of the extreme weather events we have been seeing, and their consequences.
Recently, the public water supply system of Jackson, the capital of Mississippi, failed. Over 150,000 people are now having to find bottled water for drinking and cooking, every day.
This was a consequence of low infrastructure investment, coupled with pressure from unusually severe weather events. In the case of Jackson, heavy rainfall overwhelmed their water treatment systems.
Elsewhere in the country, extreme weather and its consequences – in the form of winds, rain and forest fires – is putting huge pressure on communities, rich and poor.
If and when more cities “fail” – like Jackson – millions of people could lose faith in the investment value of their homes, and look for alternatives when it comes to securing their wealth.
Alternatives like gold.
Reason #3: High inflation.
At the time of writing, inflation seems to have passed its recent high point of about 8.5%.
That said, it is still way higher than it has been for decades.
We have whole generations of consumers and savers who have never had to face the impact of high inflation on their pocketbooks. Suddenly, millions of people are having to make tough choices between food, heating and other essential expenses like school supplies for their children.
High inflation has a real-world impact on tens of millions of families. It hurts. And it undermines confidence in our financial systems.
When people see their fiat money is losing value, month over month, many will look for alternative stores of value.
Stores of value like gold.
Just because a major flight to gold hasn’t happened yet doesn’t meant it won’t happen soon.
I began this post by talking about how gold HASN’T been behaving as we might expect during times of crisis.
But just because an event from the past hasn’t triggered a flight to gold doesn’t mean it won’t happen in the future.
Political, social and economic systems are nothing if not complex. And that complexity can lead to unexpected outcomes.
For myself, I’m assuming that one or more triggers could deliver a sharp rise in the price of gold over the next several months.
As a result, I’m not selling any gold right now, and plan to buy some more soon.
The worst that can happen? The price will just hold steady, and rise slowly, like it has been for years now.
It caught my attention when you told us that we can consider investing in alternative stores of value like gold to protect ourselves from high inflation. I want to make sure my kids are financially protected in case emergencies happen, so I’m thinking of investing in gold soon. I’ll keep what you said in mind while I look for gold sellers I might contact for my investment soon.