The sustained rise in gold prices is primarily due to strategic, long-term buying by central banks, not short-term speculation. Goldman Sachs sees significant further upside potential, which is not yet priced in, from large private institutions like pension funds and sovereign wealth funds eventually adding gold as a strategic asset.

A 100-year chart of the S&P 500 priced in gold shows a major cyclical peak was hit in late 2021, similar to 1929 and 2000. This inflection point suggests a long-term, decade-plus trend reversal favoring hard assets like gold and Bitcoin over U.S. equities.

Facing unprecedented government debt, a cycle of money printing and currency devaluation is likely. Investors should follow the lead of central banks, which are buying gold at record rates while holding fewer Treasury bonds, signaling a clear institutional strategy to own hard assets.

Metals are uniquely positioned to perform across multiple economic regimes. They serve as a hedge against national debt and central bank irresponsibility, benefit from potential rate cuts and sticky inflation, and face a massive supply-demand shock from the AI and energy infrastructure build-out.

Emerging vs. developed market outperformance typically runs in 7-10 year cycles. The current 14-year cycle of EM underperformance is historically long, suggesting markets are approaching a key inflection point driven by a weakening dollar, cheaper currencies, and accelerating earnings growth off a low base.

The surge in gold's value isn't just about uncertainty; it's a direct signal that foreign central banks and major investors are losing confidence in U.S. treasuries as a safe asset. This shift threatens the global dominance of the U.S. dollar.

For 50 years, commodity prices moved together, driven by synchronized global demand. J.P. Morgan identifies a breakdown of this trend since 2024, dubbing it the 'crocodile cycle,' where supply-side factors cause metals to outperform while energy underperforms, creating a widening gap like a crocodile's mouth.

Gold is a low-returning asset, similar to cash. Its primary value in a portfolio is not appreciation but diversification. During periods of stagflation or debt crises when other assets like stocks and bonds perform poorly, gold tends to do very well, stabilizing the portfolio.

The strategic value of commodities in a modern portfolio has shifted from generating returns to providing a crucial hedge against two growing threats. These are unsustainable fiscal policies that weaken currencies ('debasement risk') and the increasing use of commodities as geopolitical weapons that cause supply disruptions.