Putting Gold’s Move in Perspective

The physical gold price has risen rapidly over the past 2 years in the face of higher interest rates and the broader stock market continually making new all-time highs. In recent weeks, the physical gold and the correlated precious metal equity sector have hit classic seasonal weakness despite an increased government spending bill being passed (‘Big Beautiful Bill’) along with heightened geopolitical risk with the US involvement in the Middle East. Below we try to put the ‘summer doldrums’ into perspective and why, in our opinion, we are currently in a consolidation period before potentially higher prices into the fall.

Historic Moves in Perspective

In the two-year period of June 30, 2023 to June 30, 2025, the monthly average physical gold price increased 72.53% from $1,942.90 to $3,352.00 per ounce. For most professional and retail investors, they have never seen a move of this magnitude in their investing career. One can cherry pick the bottom of the 2008 Great Financial Crisis (GFC) and the move still smaller than our current set up. During the GFC, physical gold per ounce increased 53.15% from October 2008 to October 2010.

For context the highest two-year price rise of gold came at the end of the 1970’s inflation wave with a 186.25% increase during 1/31/1978 to 1/31/1980. To put into perspective how things have changed since then: Q1 of 1980, the total public debt as a percentage of GDP was 30.94%. As of Q1 2025, the U.S. sits at four times that number at 120.86%. The biggest correlation we have found for gold is U.S. total federal debt outstanding to GDP at a 93% correlation since Nixon closed the gold window in 1971. President Trump has decided that he will attempt to grow out of the current government debt quagmire rather than cut spending for fear the contraction in government spending will have on the economy. Elon Musk left his post with DOGE in protest upon learning Trump has no intention of carrying out meaningful spending cuts.

Gold Prices Significant Impact on Producer Earnings

The average gold price in the second quarter was $3,280, up 14.71% from the first quarter. Despite many producers using the higher price environment to mine lower grade material, cash flow and earnings per share are rising. Last week Newmont Mining announced its earnings, beating consensus estimates quite handily at 1.43 per share versus estimates of 1.16 per share.

The market, in our opinion, remains blasé about miner’s earnings either because the broader market has yet to pull back from record levels and/or a lack of conviction that gold prices are going to remain elevated above $3,000. It is our opinion, and history is on our side, that gold prices will remain elevated as central banks are net buyers and see few alternatives in owning neutral reserve assets. We remain convinced that operating miners and developers with near-term production prospects offer the best value in the current environment.

Dalio Promotes 15% Gold Allocation

Ray Dalio, the former head of Bridgewater Associates, spends his time trying to educate the populace by writing books and doing interviews. The billionaire investor has been sounding the alarm for a while now stating that the U.S. government has borrowed its way into a corner with the only way-out being currency debasement. In a recent CNBC interview, Dalio commented regarding the U.S., “It’s spending 40% more than it takes in, and it can’t really cut spending because so much of it is fixed. It’s accumulated a debt that’s six times its income…,” he said. “The credit system is like a circulatory system that brings nutrients—buying power—to different parts of the economy. If that buying power is used to generate income, then the income services the debt, and it’s a healthy system. But when debts, debt service payments, and interest rates rise, they begin to crowd out other spending—like plaque in the circulatory system—creating a problem akin to an economic heart attack.”

Dalio continued, “Just like in the ’70s or the ’30s, they (currencies) will all tend to go down together. We’ll pay attention to their relative movements, but they will all decline in value—relative not to fiat currencies, but to hard currencies. And that hard currency is gold,” he said.

Gold’s Seasonality

During the past few weeks, we’ve seen the gold price consolidate between $3,300 and $3,400 per oz, resulting in many pundits claiming that we’ve reached a top and a correction is near. Our biased opinion is that we don’t agree.

While it is not a 100% accurate system, we do believe that seasonality can play a role in gold’s price potentially due to simple reasons such as jewelry demand in India, summer vacation season, historic performance, and other unforeseen circumstances.

The chart above shows the pattern with gold historically rallying into the fall. Obviously, past performance may not lead to future results.

Federal Debt Outstanding vs GDP Rises

As federal debt continues to rise, the amount of gold a dollar can purchase continues to decline. Per Apollo’s chart, the CBO now projects that the United States’ federal debt outstanding will increase to over 160% of GDP over the next 25 years. By our calculations, the CBO tends to underestimate federal debt outstanding by roughly 50% when forecasting 10+ years away. Thus, one can conservatively guess that federal debt could reach up to 200% of GDP in the relatively near future. With gold’s significant correlation to U.S. federal debt outstanding, gold has a positive long-term outlook, in our opinion.

Animal Spirits Running High

Both BofA’s research and Charles Schwab recently cited noticeably low levels of cash in accounts. It appears investors are fully confident in the market, despite the continued record valuations.