If you think of equity investment as a sign of optimism and gold as a hedge against catastrophe, then in 2025 there was something weird going on: US equities and gold surged together.
Not a bad analysis, and correct on equities. An endogenous increase in money supply facilitated by low interest rates and (especially) the Fed put - and its consequent repricing of risk - have increased both risk appetite and market leverage.
However, the run-up in commodity prices is not being driven by retail. That's a comforting idea for the markets, but it's simply not true. Even if retail were buying, they don't have the numbers or wealth to affect the price of gold; see, e.g., the Reddit silver squeeze attempt of 2021 which fizzled after a few weeks and had only modest impact on a much smaller market. The real reason gold is rising is central bank purchases made as a defense against recent US mercantilism and sanctions policy.
While the reasons are different, they are both connected to an underlying theme running through world markets. What theme is that? Maybe Paul Krugman can figure it out for us.
Many of these explanations don’t actually contradict each other — they just operate at different levels.
Liquidity conditions, endogenous credit expansion, retail participation, central bank buying, and geopolitical hedging can all coexist if the underlying structure has become asymmetric.
One way to read the equity–gold co-movement is not as a contradiction between optimism and fear, but as a response to a multi-speed system: frontier productivity and asset returns continue to concentrate, while diffusion, labor mobility, housing access, and cost structures remain constrained.
In that environment, asset-owning households and institutions rationally hold both growth assets and structural hedges. Gold rising alongside equities looks less like a paradox or a pure liquidity story, and more like a symptom of persistent structural imbalance.
I’ve been tracking this interaction between frontier growth, diffusion failure, and mobility constraints in recent long-horizon structural forecasts on the US economy. From that perspective, the behavior of assets is coherent — even if it’s ultimately unstable.
MMT advocates pointed out years ago that a public deficit and private surplus go together. They were ignored. Trump’s BBB and interest rate policy are misguided but bullish. But it’s pointless to try to read tea leaves with Trump in office. There’s no tea. And no leaves. Stunts are not policy. They are distractions from an open conspiracy.
Talk to private bankers who handle Russian, Chinese and Arab money. Ask them why their clients have been buying Gold and BTC over the last couple of years.
Sanctions and asset freezes and shutting down access to SWIFT were all part of it, along with liquidity, overstimulus and inflation.
Personally I think this last rally reeks of blow off and I am writing some calls to get my gold holdings back down to 5 percent of total assets
Since the Fed's massive rescue of the markets in 2008, everything has changed. Everyone now knows that the Fed "has their back." It has repeatedly confirmed this in 2019, 2020, and most recently. This means asset holders are almost always the winners. The real question is no longer whether assets will rise, but which asset will make you the most money.The most obvious answer is an asset that is largely disconnected from fundamentals—because it is far easier to build (and sustain) a powerful narrative around it.Gold is the classic qualifier. Its branding is essentially eternal. (It is no coincidence that Bitcoin, often called "digital gold," was introduced in the immediate aftermath of the 2008 crisis.) Indeed, gold rose strongly after 2008 and kept climbing until its 2011 peak.Then came the shift everyone remembers: tech companies like Facebook and Google found a way to monetize the internet with surprisingly little capital—mainly by selling advertising—and began printing billions in profits. It felt like a miracle: some companies were making enormous money from almost nothing. After that, the entire world piled into the "tech trade," funneling capital into these seemingly magical American tech giants. The gold narrative lost much of its appeal.However, as time has passed, it has become increasingly difficult to keep the tech narrative alive. Its peak came during the Fed's massive intervention in the pandemic.Afterward, the industry pivoted to the AI narrative—which unfortunately has a serious flaw: it doesn't make money.Today, the finance industry is using all its power to keep the broader tech narrative breathing. Almost no one wants to end the dream that became reality: seemingly eternal profit growth. At the same time, gold has made a strong comeback precisely because of its permanent advantage—it remains fundamentally disconnected from economic reality and earnings.Crypto could theoretically play the same role (narrative-driven, fundamentals-light), but it has become too fragmented across thousands of tokens and projects to function as a unified alternative.As a result, this year both tech and gold have performed strongly.
“Asset prices are set at the margin, not according to whether a new buyer (with new money) (the trading app theory, AT) is available to replace existing asset holdings.”
Could someone familiar with this statement help me understand what the respective author means by ‘asset prices are set at the margin’ - I can’t parse what this functionally means. Requesting a real world transaction(s) example to help me understand this phrase.
I may be wrong, but it may be shorthand for mark to market. Thus we can see “trillions in wealth wiped out” in a day, and trillions restored a day later. It causes a lot of mischief and misery… and bargains.
Good question: Why Stocks and Gold are surging together—a historical anomaly.
From the ChinArb perspective, the answer is simple thermodynamics: The denominator is breaking.
When the fiat currency (System A's trust token) is being diluted by deficit spending and 'endogenous money creation,' everything priced in that currency goes up.
Stocks: Protection against inflation for the Top 20%.
Gold: Protection against collapse for the Bottom 80% (and central banks).
This isn't a 'malign coincidence' or just 'retail froth'; it's a flight from currency. The market is screaming that it prefers any asset—digital or metallic—over the Dollar.
What Sharma misses is that a large part of the non-gold gains over the past few years have been concentrated in roughly 10 stocks, and lately AI-related stocks in particular (Tooze refines that to the upper 20% of income, which makes sense). If one looks at the relatively miserable state of small business and consumer confidence indexes, it's not hard to see why a run up in precious metals is occurring simultaneously.
You get to it at the very end, Adam, which is better than most since they generally ignore it altogether. Increasing inequality drives increasing asset prices since the wealthy constantly accumulate more than they can consume — the only place that accumulation CAN go is into assets. This is Piketty’s insight of “r > g”
As this process continues uninterrupted it begins to generate political resistance of various forms (viz. the recent traction Gary Stevenson is beginning to get along with the rise of “anti system” parties everywhere).
The rich would do well to recognize that trees do not grow to the sky. What can’t continue won’t continue, and eventually the Morlocks eat the Eloi …
I'd be curious how much gold Costco has sold since the middle of last year. At our Costco, an East Coast NYC/Philly corridor store, they frequently sell out in a day.
Interesting opening: "If you think of equity investment as a sign of optimism and gold as a hedge against catastrophe, then in 2025 there was something weird going on: US equities and gold surged together."
[This may be a duplicate, or the first try may have failed.] I found this discussion interesting and largely persuasive as an explanation of our current, paradoxical economic situation; however, I do have one reservation. Based on very micro, personal observation, I think that gold is largely being driven up by young, speculative investors, and older, disaffected (and underpaid) professionals who are profoundly pessimistic about the economy and its future.
Not a bad analysis, and correct on equities. An endogenous increase in money supply facilitated by low interest rates and (especially) the Fed put - and its consequent repricing of risk - have increased both risk appetite and market leverage.
However, the run-up in commodity prices is not being driven by retail. That's a comforting idea for the markets, but it's simply not true. Even if retail were buying, they don't have the numbers or wealth to affect the price of gold; see, e.g., the Reddit silver squeeze attempt of 2021 which fizzled after a few weeks and had only modest impact on a much smaller market. The real reason gold is rising is central bank purchases made as a defense against recent US mercantilism and sanctions policy.
While the reasons are different, they are both connected to an underlying theme running through world markets. What theme is that? Maybe Paul Krugman can figure it out for us.
Many of these explanations don’t actually contradict each other — they just operate at different levels.
Liquidity conditions, endogenous credit expansion, retail participation, central bank buying, and geopolitical hedging can all coexist if the underlying structure has become asymmetric.
One way to read the equity–gold co-movement is not as a contradiction between optimism and fear, but as a response to a multi-speed system: frontier productivity and asset returns continue to concentrate, while diffusion, labor mobility, housing access, and cost structures remain constrained.
In that environment, asset-owning households and institutions rationally hold both growth assets and structural hedges. Gold rising alongside equities looks less like a paradox or a pure liquidity story, and more like a symptom of persistent structural imbalance.
I’ve been tracking this interaction between frontier growth, diffusion failure, and mobility constraints in recent long-horizon structural forecasts on the US economy. From that perspective, the behavior of assets is coherent — even if it’s ultimately unstable.
(Related structural notes here: [https://hncbpinstitute.substack.com/p/structural-futures-series-issue-2], [https://hncbpinstitute.substack.com/p/rebuilding-the-us-productivity-frontier])
MMT advocates pointed out years ago that a public deficit and private surplus go together. They were ignored. Trump’s BBB and interest rate policy are misguided but bullish. But it’s pointless to try to read tea leaves with Trump in office. There’s no tea. And no leaves. Stunts are not policy. They are distractions from an open conspiracy.
Talk to private bankers who handle Russian, Chinese and Arab money. Ask them why their clients have been buying Gold and BTC over the last couple of years.
Sanctions and asset freezes and shutting down access to SWIFT were all part of it, along with liquidity, overstimulus and inflation.
Personally I think this last rally reeks of blow off and I am writing some calls to get my gold holdings back down to 5 percent of total assets
Since the Fed's massive rescue of the markets in 2008, everything has changed. Everyone now knows that the Fed "has their back." It has repeatedly confirmed this in 2019, 2020, and most recently. This means asset holders are almost always the winners. The real question is no longer whether assets will rise, but which asset will make you the most money.The most obvious answer is an asset that is largely disconnected from fundamentals—because it is far easier to build (and sustain) a powerful narrative around it.Gold is the classic qualifier. Its branding is essentially eternal. (It is no coincidence that Bitcoin, often called "digital gold," was introduced in the immediate aftermath of the 2008 crisis.) Indeed, gold rose strongly after 2008 and kept climbing until its 2011 peak.Then came the shift everyone remembers: tech companies like Facebook and Google found a way to monetize the internet with surprisingly little capital—mainly by selling advertising—and began printing billions in profits. It felt like a miracle: some companies were making enormous money from almost nothing. After that, the entire world piled into the "tech trade," funneling capital into these seemingly magical American tech giants. The gold narrative lost much of its appeal.However, as time has passed, it has become increasingly difficult to keep the tech narrative alive. Its peak came during the Fed's massive intervention in the pandemic.Afterward, the industry pivoted to the AI narrative—which unfortunately has a serious flaw: it doesn't make money.Today, the finance industry is using all its power to keep the broader tech narrative breathing. Almost no one wants to end the dream that became reality: seemingly eternal profit growth. At the same time, gold has made a strong comeback precisely because of its permanent advantage—it remains fundamentally disconnected from economic reality and earnings.Crypto could theoretically play the same role (narrative-driven, fundamentals-light), but it has become too fragmented across thousands of tokens and projects to function as a unified alternative.As a result, this year both tech and gold have performed strongly.
“Asset prices are set at the margin, not according to whether a new buyer (with new money) (the trading app theory, AT) is available to replace existing asset holdings.”
Could someone familiar with this statement help me understand what the respective author means by ‘asset prices are set at the margin’ - I can’t parse what this functionally means. Requesting a real world transaction(s) example to help me understand this phrase.
I may be wrong, but it may be shorthand for mark to market. Thus we can see “trillions in wealth wiped out” in a day, and trillions restored a day later. It causes a lot of mischief and misery… and bargains.
Good question: Why Stocks and Gold are surging together—a historical anomaly.
From the ChinArb perspective, the answer is simple thermodynamics: The denominator is breaking.
When the fiat currency (System A's trust token) is being diluted by deficit spending and 'endogenous money creation,' everything priced in that currency goes up.
Stocks: Protection against inflation for the Top 20%.
Gold: Protection against collapse for the Bottom 80% (and central banks).
This isn't a 'malign coincidence' or just 'retail froth'; it's a flight from currency. The market is screaming that it prefers any asset—digital or metallic—over the Dollar.
I break down the physics of this 'System Switch'—and why Manufacturing is the only real hedge—in my latest dispatch: 👇 [ https://chinarbitrageur.substack.com/p/the-underlying-operating-system-of?r=71ctq6 ]
What Sharma misses is that a large part of the non-gold gains over the past few years have been concentrated in roughly 10 stocks, and lately AI-related stocks in particular (Tooze refines that to the upper 20% of income, which makes sense). If one looks at the relatively miserable state of small business and consumer confidence indexes, it's not hard to see why a run up in precious metals is occurring simultaneously.
You get to it at the very end, Adam, which is better than most since they generally ignore it altogether. Increasing inequality drives increasing asset prices since the wealthy constantly accumulate more than they can consume — the only place that accumulation CAN go is into assets. This is Piketty’s insight of “r > g”
As this process continues uninterrupted it begins to generate political resistance of various forms (viz. the recent traction Gary Stevenson is beginning to get along with the rise of “anti system” parties everywhere).
The rich would do well to recognize that trees do not grow to the sky. What can’t continue won’t continue, and eventually the Morlocks eat the Eloi …
I'd be curious how much gold Costco has sold since the middle of last year. At our Costco, an East Coast NYC/Philly corridor store, they frequently sell out in a day.
Interesting opening: "If you think of equity investment as a sign of optimism and gold as a hedge against catastrophe, then in 2025 there was something weird going on: US equities and gold surged together."
Thanks for the insights.
Not buy oz per $ in gold.
It is sell $ per oz.
People are trying to shift out of cash because the credibility of USD and US government and in particular US Military are collapsing.
Buying EUR or GBP is not a hedge.
Fed only has one tool - print money.
[This may be a duplicate, or the first try may have failed.] I found this discussion interesting and largely persuasive as an explanation of our current, paradoxical economic situation; however, I do have one reservation. Based on very micro, personal observation, I think that gold is largely being driven up by young, speculative investors, and older, disaffected (and underpaid) professionals who are profoundly pessimistic about the economy and its future.